There's A Sudden Resurgence Of Consumer Staple Stocks

There has been a lot of turbulence recently in the stock market. The consumer staples sector is once again in vogue, which is not surprising.

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As 2023's broader market rally gained steam, investors quickly abandoned consumer staples stocks, which had been a relative haven during last year's bear market. There was little room for steady performers when everyone had regained their appetite for risk.

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Even though the S&P 500 SPX +1.68% is in the black year to date, the Consumer Staples Select Sector SPDR Fund (ticker: XLP) has fallen about 3.5% year to date. But the story is quite different if we focus on more recent trading activity in the fund.

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During the past few weeks, investors have once again flocked to staples in search of safety as the market has experienced tumultuous days due to concerns about the health of the banking sector. The S&P 500 has fallen 2.5% in the last five days - even with Tuesday's pop - while the XLP has only drifted down 0.5% in the same period.

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There have been some industry favorites that have done even better than expected, especially best-in-class operators, who have reported robust growth and better-than-expected profits despite inflationary pressures. Over the past week, Procter & Gamble PG +1.24%  stock (PG) has gained 1.3%; Colgate-Palmolive CL +1.03% stock (CL) has made an increase of 0.4%; Mondelez International MDLZ +1.14% stock (MDLZ) has increased by 0.4%; and PepsiCo PEP –0.10% stock (PEP) has roughly achieved break even.

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Similarly, XLP has fallen just 2.2% over the past month, while the S&P 500 has declined 6%.

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Staples typically perform well during market turmoil, so the sector's milder losses are not unusual. Dividend yields from these companies may be somewhat tempered by rising interest rates, but investors' desire for safety has largely offset that.

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Furthermore, consumer staples have demonstrated they have ongoing pricing power, which lessens some of the pinch inflation has on profits, which is one of the benefits of lower inflation. The underperformance of the sector earlier this year has also lowered the stocks' multiples a bit, due to the fact that valuations had been bid up throughout the year for the sector.

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Earlier this year, Trade Algo argued that certain staples were still worth investors' attention. Banks, as a whole, could find themselves back in favor if Tuesday's rally isn't the end of the market's worries about them.

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