The consumer goods sector has outperformed the blue-chip S&P 500 Index in six of the last eight weeks.
Consumer goods tends to underperform during economic expansions, but recovers when growth begins to slow. The sector outperformed during the market decline in 2022 but has fallen in the second half of 2023 as the narrative of a soft landing in the economy emerged.
However, in recent weeks there has been a realization from investors that they overlooked defensive stocks last year, and this latest shift could be another sign that the ongoing equity rally is broadening.
In recent months, investors have turned their attention to Consumer Goods stocks in the US, such as Coca-Cola and Colgate-Palmolive, seeking more defensive areas of the market amid growing concerns about a potential slowdown in the US economy. Amid economic uncertainty and signs of a slowing labor market, consumer staples are outperforming the S&P 500, making them attractive to investors seeking refuge in more stable sectors.
The consumer staples sector, which includes household names such as Kraft Heinz, Procter & Gamble, and Walmart, has outperformed the blue-chip S&P 500 in six of the past eight weeks, Bloomberg data shows. Last week, the S&P 500 consumer staples index posted its best performance against the main index since March 2020, hitting an all-time high, although it has given back some of that ground in recent days.
The performance represents an extension of this year’s stock market rally, which until now has been driven primarily by tech giants. As the U.S. labor market begins to show signs of a slowdown, uncertainty is rising over how the Federal Reserve will handle future interest rate cuts, fueling recession fears.
Coca-Cola has risen about 20% this year, while Colgate has gained a third of its value. Walmart, Target, and Clorox have also performed strongly over the past month, with gains of 14.8%, 9.1%, and 15.6%, respectively, far outpacing the S&P 500’s modest gain of 4.5% over the same period.
Historically, defensive stocks such as consumer staples tend to perform well before the Fed’s first rate cut, which usually comes when there is sufficient evidence of an economic slowdown. However, if data emerges that belies the idea of an impending recession, the consumer goods sector could return to underperforming.
Morgan Stanley added Walmart, Coca-Cola, and Colgate to its list of recommended stocks, advising its clients to focus on "defensive companies that prioritize operational efficiency or have durable pricing power, or both." The sector has also benefited from investors gradually shifting away from riskier sectors and toward safer ones, such as consumer goods, real estate, and utilities, according to data compiled by Deutsche Bank.
Meanwhile, concerns about slower earnings growth in technology stocks, which had until recently dominated the market, have prompted investors to trim their positions in artificial intelligence stocks, confirming a preference for more defensive sectors.
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Original article published on Money.it Italy 2024-09-21 07:25:00. Original title: Perché Morgan Stanley consiglia le azioni sui beni di consumo? Focus su tre titoli
