If we’re going to see the Consumer Staples bounce, it’ll need to start with an improvement in breadth.
Today, nearly three-quarters of the sector’s constituents are in long-term technical downtrends, while the other quarter remain in technical uptrends. But things are deteriorating on a short-term basis, where just 1 in 10 are in short-term technical uptrends.
The sector will need to turn things around in short order if it’s to have any hope of riding a fourth quarter rally.
Stocks are in the midst of their largest selloff since March, so you might expect to see risk-off sectors catching a bid. Unfortunately, they aren’t getting much of one at all.
The Consumer Staples entered the month near the high end of a two-year trading range, but now they find themselves back below a 200-day moving average price and knocking on the door of two-month lows.
It seems like an eternity ago, but Consumer Staples were the belle of the ball in December 2022. The sector was breaking out to 30-month highs relative the rest of the S&P 500, and that reign looked set to continue with a presumed recession on the horizon.
Then came January.
That breakout became a failed move, which sparked a steep selloff and, ultimately, a full-fledged trend reversal. Now Consumer Staples is at multi-year relative lows.
If a bear market is defined as a 20% drawdown, then the Consumer Staples sector managed to avoid the bear entirely in 2022. While the S&P 500 peaked in January of last year before embarking on a steep 25% decline, the Staples managed to keep climbing until April. They were also leaders out of the October lows, climbing 15% by the end of November and getting within 5% of new all-time highs. The S&P 500, for context, still hasn’t gotten that close to its own former highs.
Since that November peak, though, Staples have been completely left behind by the rally. The sector isn’t in a downtrend – it’s above its 200-day average and has set two higher lows since the October bottom – but it’s not in an uptrend either. Their January 2022 highs have been stiff resistance for more than a year.
It looks like we’ll have to wait a bit longer for a breakout.
It’s near the middle of the pack when it comes to year-to-date returns, but don’t let the Consumer Staples sector slip under your radar. It’s closer to new all-time highs than any other group.
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.
