By David Wainer
As the AI trade wobbles, some investors are again searching for shelter.
Consumer packaged goods -- from food to cleaning products -- have been mostly overlooked thus far despite typically serving as a refuge during periods of market stress. After several years of underperformance, the sector offers pockets of value, whether in diapers, soda, candy or beer. Finding safety, however, requires selectivity, as structural shifts in how we eat and drink collide with parts of the consumer-staples universe.
History helps explain why investors instinctively reach for staples in times of stress. In each of several major market downturns in recent decades -- periods when the S&P 500 fell 20% or more -- the sector generally outperformed.
During the dot-com bust of 2000, the financial crisis of 2008 and even the inflation-driven selloff of 2022, companies selling everyday necessities outperformed the broader market. Investors seek the relative safety of their predictable cash flows.
Take the most recent major selloff in 2022. From the market's January peak to its October trough, the S&P 500 fell roughly 25%. Over that same period, General Mills, Campbell's, Hershey and J.M. Smucker all advanced. A similar pattern played out during more-recent declines following President Trump's "Liberation Day" tariff announcement, reinforcing the idea that Big Food can still act as a hedge when growth stocks unravel.
But those spurts of outperformance have been short-lived, partly because of structural forces affecting these companies. Over the past three years, those food makers are all down even as the S&P 500 has advanced 79%. Healthier eating, the rise of weight-loss drugs and intensifying competition from store brands mean investors have to weigh the relative safety of these food companies against growing pressures to their business that might intensify next year.
In 2026, weight-loss drugs are expected to be adopted more widely, aided by new oral formulations and wider insurance coverage. That could continue to pressure demand for high-calorie, heavily processed foods.
At the same time, consumers still recovering from years of food inflation are increasingly trading down to store brands, benefiting retailers such as Walmart and Costco at the expense of branded manufacturers. These trends have put pressure on Big Food volumes, forcing many to offer promotions to win back market share. For instance, General Mills last week reported a rebound in volume of its North America retail business, but only because it is cutting prices.
Investors looking to rotate into the safety of staples might want to be more tactical. McCormick stands out as a company better aligned with evolving consumer behavior.
While the stock is pricier than the average food company, at around 21 times forward earnings, it is significantly below its five-year average of about 27. The company benefits from two durable secular shifts: more at-home cooking, and a growing preference for fresher, healthier meals, says Robert Moskow, an analyst at TD Cowen. Spices account for a tiny share of a household's food budget, making McCormick's volumes more resilient than those of traditional packaged-food companies.
Moskow also notes that younger consumers are cooking more -- a shift McCormick has captured through targeted marketing and disciplined pricing that makes it harder for private labels to compete.
Another way to gain food exposure without running headlong into U.S. consumer pressures is geographic diversification. Mondelez and Nestlé generate much of their revenue outside the U.S., making them less exposed to domestic economic stress. As an added benefit, easing cocoa-cost pressures could help margins in their chocolate businesses. Beverage giant Coca-Cola, with its global footprint and growing focus on zero-sugar drinks and energy beverages, also fits the mold of a steady performer.
Yet another approach is to bet on companies selling household and personal-care essentials that are insulated from shifting health trends.
While they are facing pressure from store-brand competition, companies such as Procter & Gamble and Kimberly-Clark -- whose portfolios span detergent, diapers and tissues -- have no direct exposure to food-consumption trends.
P&G is the steadier but more expensive option, while Kimberly-Clark offers a cheaper entry point after its Kenvue deal rattled investors worried about deal risk and potential legal overhangs tied to consumer-health brands like Tylenol. It is trading at a forward multiple of 13.1 relative to a five-year average of nearly 19.
Consumer staples can still offer shelter in a turbulent market. The challenge now is telling durable value apart from value traps.
Write to David Wainer at david.wainer@wsj.com
(END) Dow Jones Newswires
December 21, 2025 05:30 ET (10:30 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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