Category: Consumer Staples

During bear markets, Consumer Staples tend to outperform. That’s what we saw all throughout 2022. Just a few short days into the new year, though, Staples failed to hold relative support, and subsequently gave up a year’s worth of outperformance in about a month’s time.

The Consumer Staples sector outperformed in February after finding support at last year’s relative lows.

We reduced our rating of Consumer Staples to equalweight earlier this month, when it became clear that its bullish resolution had turned into a failed breakout. Like we said, from failed moves come fast moves in the opposite direction. Staples are below their 200-day moving average relative to the S&P 500 for the first time in a year.

We raised Consumer Staples to overweight when we downgraded Energy in early December. We were rewarded with a bullish resolution from the 6-month relative consolidation pattern we’d been watching. We’re targeting the 2018-2019 highs for the ratio.

Consumer Staples are a great measure of risk appetite. When the economic outlook is uncertain, investors tend to favor companies that offer stability. Consumer Staples fit that bill. Recession or not, we’re going to keep buying toothpaste and toilet paper, but we may hold off on buying that new TV for the man-cave. Staples, then, offer a great measure of risk appetite. When these stable companies outperform the broader index, it’s a sign that investors are cautious. When Staples lag, investors are adding risk to capitalize on faster expected growth.