To The Moon

As we are expecting another strong jobs report in the bag today (03 May 2024), we have heard the Fed Chair Powell comments that rate hike is unlikely, but the decision for rate cut is still not there.

So how can we adjust our strategy in order to defend against this uncertainty and we can take advantage of how the S&P 500 sector is performing.

Consumer Staples Sector Out Of Favor In 2023

If we looked at the defensive sector, Consumer Staples in 2023, the stocks had a challenging year in 2023. But the valuations are now compelling and profit margins and volumes potentially poised to rise in 2024.

With the longer and stable interest rates, I believe the consumer staples sector would have a better 2024 especially when investors are shifting their favor to defensive and dividend-paying stocks. Performance in 2023 was a drag because we saw investors shunned defensive stocks and showered favor on a narrow segment of mega-cap growth companies (particularly those with ties to artificial intelligence).

In recent earnings in 2024, we also saw the favor by investors on mega-cap growth companies as well. So we might need to have both in our strategy for 2024.

Sector Indices Performance Up To April 2024 - Look At Consumer Staples and Info Tech

If we look at the sector performance, we could see that consumer staples, information technology, healthcare and comm services performing better that S&P MidCap 400 and S&P 500 Small Cap 400.

I would look at companies with attractive valuations and strong pricing power may offer the strongest returns potential for 2024. Companies that can raise prices or hold them steady may be more likely to meet their profit-margin forecasts. And companies that have invested gains in advertising and long-term brand building may have an added tailwind.

S&P 500 Sector Average Correlation (April 2024)

Consumer staples sector has a pretty low correlation to S&P 500. So if S&P 500 were to experience any volatility due to the mega-cap or other sectors, I believe we could still see growth from some of the consumer staples stocks.

I would think household products companies would be best positioned for 2024 because of the sticky pricing, positive trends on sales volumes, and earnings flexibility.

One of the example is $Procter & Gamble(PG)$ . Even though net sales rose only 1% in the quarter ending 31 March, Procter & Gamble's net earnings rose 10% to $3.8 billion, as diluted earnings per share ticked up 11% to $1.52. Meanwhile, operating income increased by 5%, up to $4.5 billion.

One more metric to watch would be the gross margin, there was an improvement of more than 3% from 48.2% to 51.2%. Three reasons for the gains: more productive manufacturing, lower commodity costs, and higher pricing contribute to this rise in gains.

$Consumer Staples Select Sector SPDR Fund(XLP)$

If we looked at the consumer staples select sector, we could see that low volatility is increasing and the dividend is increasing, higher than the benchmark.

These are reasons why I would look at this ETF to take advantage of the sector, as there are quite a number of household brand stocks that we need to look at.

Last year, an alarming statistic pointed out that 93% of homebuyers have regrets about purchasing a home in 2023. If we looked at this closely, if the market and economic conditions were so bullish, why would we see a high percentage of regret on real estate investment.

I would think that people have struggled for years now with high inflation and high borrowing costs. While there is no signs of an economic meltdown, but interest rates might remain as it is, when will it be coming down? So I would think a focus on the essentials may materialize.

I would think it is time to take a look at consumer staples because constituent volatility is low as compared to other sector.

Summary

While we are seeing positive sentiment yesterday, but do remember uncertainty still remains, as the interest rates are not cutting. So loans and mortgage due will still suffered from current interest rate.

If we were to look at how consumer would be focusing, it would be essentials, as people will still be well employed, but with disposable income higher, will they spend on discretionary?

Appreciate if you could share your thoughts in the comment section whether you think consumer staples sector is something we can look at in 2024 and take advantage of attractive price.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.