Consumer Staples Stocks Prove That the ‘Strong Consumer’ Is Just a Myth


Consumer staples stocks - Consumer Staples Stocks Prove That the ‘Strong Consumer’ Is Just a Myth

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Consumer staples stocks are the latest equities on Wall Street to flash a warning signal. Consumer staples is the “need” sector of the stock market, with companies involved in the production or distribution of essential goods and services that consumers are either unable or unwilling to cut from their budgets. This includes manufacturers and distributors of food, beverages, tobacco, and household items, as well as personal products and certain retailing operations.

Typically, these stocks have stable earnings, consistent dividend payouts, and less sensitivity to economic cycles compared to other sectors. As such, they are often seen as defensive investments. They provide investors with a potential hedge against economic downturns. Companies like Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), and Walmart (NYSE:WMT) are quintessential examples within this sector, offering products and services that remain in steady demand.

Consumer staples has a very different sector profile than consumer discretionary. The consumer discretionary sector is the “want” sector. The sector includes businesses that tend to be highly sensitive to economic cycles. This sector includes a wide range of industries such as automotive, household durable goods, apparel, hotels, restaurants, leisure facilities, and services. Luxury goods, high-end retailing, and consumer electronics also fall under this category.

Stocks in this sector, such as Amazon (NASDAQ:AMZN), Nike (NYSE:NKE), and Starbucks (NASDAQ:SBUX), often have higher volatility. They can provide substantial growth opportunities during economic expansions, as consumers are more likely to make discretionary purchases. However, they can also face significant pullbacks during economic downturns as consumers cut back. The performance of these stocks is closely tied to consumer confidence and disposable income levels, making them a dynamic yet potentially rewarding component of an investment portfolio.

So why in the world are defensive consumer staples stocks OUTPERFORMING offensive consumer discretionary stocks right now?

Notice how the price ratio spiked in 20020 and 2022? When there was a crash and a bear market, respectively? Ask yourself why this sector, like utilities, is quietly outperforming. The answer is that bears are in control.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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