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Consumer Staples
| The Consumer Staples Sector comprises companies whose businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food, beverages and tobacco and producers of non-durable household goods and personal products. It also includes food & drug retailing companies as well as hypermarkets and consumer super centers. |
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Actual market weightings for each sector are based on the S&P 1500.
**The Market Analysis, Research and Education (MARE) group is a unit of Fidelity Management & Research LLC.
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Sector Commentary from Standard & Poor's
11/15/2009
S&P recommends marketweighting the S&P 500 Consumer Staples sector. Year to date through October 23, this sector, which represented 11.6% of the S&P 500 Index, was up 8.9% compared with a 19.5% rise for the S&P 500. In 2008, the sector index fell 17.7% versus a 38.5% decrease for the 500. There are 12 sub-industry indices in this sector, with Household Products being the largest, at 21.9% of the sector's market value.
S&P analysts' fundamental outlook for the sector is neutral. We believe consumers are trading down to private label brands and that this is hurting demand for national branded products and crimping profit margins. In addition, inventory de-stocking by retailers and consumers is a sales headwind. Offsetting these factors are what we view as relatively attractive valuations and dividend yields, the likelihood of continued U.S. dollar weakness and the inelasticity of demand for this defensive sector's products. The S&P 500 Consumer Staples sector trades at 13.8X 2010 estimated EPS, a discount to the projected P/E of 14.6X for the broader market. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 1.4X is slightly below the broader market's 1.5X. Lastly, the sector's marketweighted STARS average of 4.0 (out of 5.0) is above the average of 3.7 for the S&P 500.
The S&P Consumer Staples Index has rallied right up to a very large layer of chart resistance in the 274 area. This resistance is made up of three pivot lows from August 2007, and January and June 2008. We think the sector could start to struggle from a price basis and we believe there could be a long period of consolidation. While the overall price structure still appears bullish to us, relative strength versus the S&P 500 remains in a downtrend that started in March. The RS line recently dropped to its lowest level since September 2008, a bearish sign, in our view. From a momentum standpoint, the 14-week RSI has cycled into overbought territory, while the 14-day RSI is extremely overbought. This, to us, suggests that prices could consolidate or pull back over the intermediate term. Technically, we are neutral with a bearish bias on Staples.
In summary, we recommend marketweighting the S&P 500 Consumer Staples sector. This reflects our view that while the sector's sales remain less sensitive to recessionary forces than many others, margins are nevertheless being negatively impacted by consumers trading down.