While everything else falls, consumer-staples stocks are climbing past the wider market this year, reports an article in The Wall Street Journal. Molson Coors, Hershey, and Campbell Soup have all risen—19%, 14%, and 11% respectively—while the S&P 500 has tumbled 18%.
Consumer-staples stocks are generally thought of as safe havens during tumultuous markets, with investors snapping up shares to offset riskier stocks in their portfolios. That’s especially true right now, when record inflation, rising interest rates, and a looming recession has investors looking for refuges that can withstand volatility. Financial firms are beginning to shift away from the tech, financial and healthcare sectors and towards staples in order to take a more defensive position, according to Justin Burgin of Ameriprise Financial, who is quoted in the article. “In bear markets,” Burgin said, “it’s the portfolio that loses the least that is the winner.”
Even though staples companies may have lower profit margins than the flashier tech companies from the last decade, those profit margins have remained steady, bringing more stability to a portfolio. “…it’s a good place to kind of hide out,” Burgin noted. And other analysts believe that consumer-staples will withstand rising costs for labor and fuel better in the short-term than other sectors.
But some investors believe that higher prices will hurt consumer-staples, as the average household cuts back on their expenses, the article contends. Disappointing earnings reports from some major retailers such as Walmart in the first quarter could be one sign that the upward trajectory for staples stocks may start to level off, especially as staples companies will be forced to pass along higher costs to their consumers. And the consumer-staples sector of the S&P 500 is pricier than the rest of the index, leading some managers to shy away from the sector, such as Jack Janasiewicz of Natixis Investment Managers Solutions. “Now’s not the time…batten down the hatches in the staples sector,” he told The Journal.
