Recent reports have revealed that of all sectors of the S&P 500, the consumer staples has performed the worst this year. In fact, the sector has performed so badly that Chad Morganlander, a member of the Washington Crossing Advisors says its actually for good.
Currently, interest rates are rising, and the 10-year Treasury note has closed at 3 percent. All these factors along with the competition due to the rise of bond yields have led to the consumer staples sector suffering badly.
Why is Morganlander bullish about the future of the sector?
Despite such an adverse environment, Morganlander remains bullish in his views about the sector.
He reasons that the market as a whole does not fully understand or appreciate the value of stocks like Pepsi and Walmart on the sector. He is of the opinion that although the consumer staples sector might be suffering now, a combination of e-commerce and the stocks mentioned earlier can have a better impact on the sector in the coming months.
In addition, Morganlander also believes that Church & Dwight, with their strong presence in the consumer staples sector, will play a major role in pushing the stakes higher for consumer staples.
Why is the consumer sector, in particular, performing poorly?
A quick overview of the market tells us that the consumer staples sector has reached a 10-year low as a result of the constantly rising rates and inflation. The sector has been down by 7 percent of the S&P 500. In 2015, consumer staples reached 10 percent of the S&P 500 and nearly two decades ago, it was 15 percent.
Currently, the stocks in this sector are low but still not as cheap as one would think. The rising bond yields have led to lower yield support with some of the stocks yielding nearly 4 percent. Buyers are put off by these factors.
Another reason why the sector has been performing so badly can be attributed to the fact that consumer staples are quite expensive. To be more precise, consumer staples trades nearly 20 times the earnings. With the high price to income ratio, it is no wonder that consumers are falling back from purchasing certain commodities.
The figures are high for a sector that shows slow growth and it looks like it will take some time for the sector to recover and for buyers to come into action.
Even so, investors are still counting on the sector's relatively slow growth and hoping for lucrative dividends from the stocks.