Consumer Staples have weakened with the market's tariff fears lessening, so we review the sector’s current picture, in addition to providing actionable names.
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Consumer Staples saw a rapid ascent in relative strength during the peak of the market’s tariff fears, with the flight to safety pushing them up to 6th place in DALI’s sector ranks. However, the group has shown deterioration as tariff concerns have slowly subsided, with the group falling back to DALI’s 7th rank after losing 21 signals so far in May. The group is within 2 signals of being overtaken by Basic Materials, at which point it would fall into firmer underweight territory.
Within Asset Class Group Scores, the decline of Consumer Staples has been even sharper. Consumer Staples held an average score of 3.61—third best of the 11 major sectors—at its peak in April. The sector has since fallen nearly a full point to a score of 2.62—fourth worst of the eleven major sectors. The decline of staples is even starker when comparing it to its discretionary counterpart. Staples is back to ranking nearly a full point lower than the Discretionary Sector after moving ahead in February, serving as another sign of relative strength leadership returning to risk-on areas.
The outperformance of the Consumer Discretionary sector over Consumer Staples in the last month has been quite notable. In fact, Consumer Discretionary Select Sector SPDR Fund (XLY) has bested the Consumer Staples Select Sector SPDR Fund (XLP) by 16.6% over the last month. There have only been 10 other clusters in which XLY sector has outperformed XLP by over 15% in a month, with the last time coming in June of 2023. Looking at those previous instances, returns over the next three months indicate the potential for a consolidating market in the near-term. However, the one-year returns are strong for both sectors, with each averaging a return north of 10% in addition to an 80% positive rate. One-year returns favor XLY, as it has outperformed XLP each of the last eight instances, but the first two occasions did see large outperformances from Staples.
Broadly speaking, Staples has lost enough strength for it to no longer be a sector of focus. However, there are select companies within it offering high relative strength profiles. Our NDW Buy List offers high attribute names within each sector, and two strong names within Staples are Rollins, Inc (ROL) and Altria Group (MO). ROL is on its second consecutive buy signal after breaking a triple top at $57 at the end of April, marking an all-time high. The 5 for 5’er moved to a market RS buy signal last month and has been in a positive trend since 2003. Meanwhile, MO broke a double top at $60 earlier this month to reach a multi-year high. The 4 for 5’er moved to a peer RS buy signal in March and ranks in the top decile of its sector matrix. For income investors, note that MO is accompanied by an impressive yield of 6.81%. To see other names within our buy list, click HERE.
