Amid the global market turmoil this year, at least one group of stocks has become a big benefactor — consumer staples.
The traditionally defensive sector hit an all-time high on Wednesday and has been one of the year’s best performing sectors in the S&P 500. Investors tend to flock to consumer staples stocks in times of trouble because of consistent demand and dependable dividend yields.
Rich Ross, head of technical analysis at Evercore ISI, sees one other reason to own the S&P consumer staples ETF: the chart of XLP has recently broken above a key technical level, which may signal more gains to come.
“You probably can’t do much better than owning the staples on this breakout from a multiyear trading range … against the backdrop of a world where yields are extremely low,” Ross said Wednesday on CNBC’s “Trading Nation.” “To me that’s a winning combination in a world of heightened macro volatility.”
On the other hand, Ross noted that continued strength in consumer staples stocks may be bad news for the overall market.
“The fact [that consumer staples is] hitting an all-time high is not exactly a ringing endorsement for risk taking or the market more broadly,” he said.
When it comes to those stocks specifically, they are actually trading at a notably high valuation right now, warned Erin Gibbs, chief equity investment officer at S&P Investment Advisory.
Gibbs said the flood into consumer staples has also sent the sector’s price-to-earnings ratio to an all-time high; the forward P/E for consumer staples is now 21, versus 16 for the broader S&P 500. Meanwhile, she said the projected growth for the sector remains comparatively subdued, with 2.5 percent expected earnings growth and less than 1 percent in revenue growth.
“You can see people really piling in,” Gibbs said Wednesday on “Trading Nation.” “This is very much about a flight to safety, stable dividend yields, and obviously trying to avoid some of that volatility.”
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