Consumer Staples Sector Deep Dive
We’re sticking with the consumer today as we dig into the Staples sector. If you missed yesterday’s report on the Consumer Discretionary sector, check it out here.
The S&P 500 Index has gained more than 12% this year, but you’d never know it by looking at the Consumer Staples sector. It’s among the worst-performing groups in 2023, sporting a decline of 6.8%.
Not even the month of October was able to give the sector much of a boost. Historically, the month of October has been the best month to own Staples. They’ve gained an average of 2.3% during that period since 1990, and outperformed the S&P 500 index by 0.9%.
Could the next few months change the narrative? November and December are also bullish months for the sector, with average gains of 1.9% and 1.3%, respectively. A rally to end the year would be starting from a logical level of support, too. In October, the buyers stepped in when the Staples retested their lows from the prior year. That level was also where prices peaked out in the latter half of 2020.
Compared to the benchmark S&P 500, though, the rally may have already run its course. After finding support at the December 2021 lows, the Consumer Staples/S&P 500 ratio rallied 8% - but it failed to surpass the swing high from September. In other words, we’re still in a regime of lower highs and lower lows. We can’t get too excited about the Staples until that changes.
Especially since the weakness is even more pronounced beneath the surface. The equally weighted Consumer Staples broke down to multi-year lows over the summer.
A rally back to the breakdown level near $30.50 isn’t out of the question here, but the higher likelihood outcome is that any rally gets rejected by overhead supply.
An assessment of the sector’s constituents compared to their moving averages supports the uninspiring outlook. Just 13% of large cap Consumer Staples stocks are above their 200-day moving average, and only 11% are above their 100-day. Both readings are the worst of any sector within the S&P 500.
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Losers tend to keep on losing.