Within the broader equity market these days, there probably isn’t a sector that is more out of favor than Consumer Staples. As consumers have shifted their tastes away from brands that dominated the economy of their parent’s generation, the stocks in the sector have been big market laggards. The chart below shows the relative strength of the Consumer Staples sector versus the S&P 500 since 1980. A rising line indicates outperformance on the part of the Consumer Staples sector, while a falling line indicates underperformance. After dominating the market in the 1980s, Consumer Staples performed inline with the market throughout most of the 1990s until the Tech bubble where they fell out of bed on a relative basis. By March 2000, there wasn’t a lonelier place to be in the market than Consumer Staples.
When the dot-com bubble burst, though, Consumer Staples saw a major rebound relative to the market and quickly regained all of the ground it lost during the late 1990s. Suddenly, stocks like Procter & Gamble (PG), Coca-Cola (KO), and Pepsi (PEP) that no one cared about a couple of years earlier were the new market darlings. Then in the bull market that followed, the sector fell out of favor again until the Financial crisis as investors shifted their focus to more growth-oriented names. Throughout the current expansion, Consumer Staples once again slowly lost ground relative to the market as investors started to drift away from defensive sectors.
In the last two years, the pace of underperformance has really started to accelerate, causing the sector’s relative strength to fall to an 11-year low versus the S&P 500. Once again, P&G and stocks like it are as popular as snow in April. How unpopular is the sector? Even after the sharp drop in relative strength, one major Wall St. firm just downgraded Consumer Staples to underweight!
In terms of relative strength, one sector that is just starting to emerge from years of underperformance is Energy. The sector has seen a big rally over the last few months and is currently less than 3% from a 52-week high. Looking at the sector’s relative performance versus the S&P 500, though, you wouldn’t know it as you can barely see the turn higher.