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Consumer Staples ETF: Playing Defense with Sectors


Consumer Staples Select Sector SPDR (XLP) had been outperforming since mid-April as investors scrambled to add risk, but now that trend could be reversing as investors pump the brakes a bit.

The S&P 500 has traded in a more volatile range recently, rattling some investor nerves which in turn should result in a defensive rotation, says Tarquin Coe, technical analyst at Investors Intelligence.

“That rotation is already becoming apparent in the charts for the SPDR Consumer Staples (XLP) ETF,” he wrote in a newsletter Monday.

“The relative chart of the XLP versus the S&P 500 has defeated a downtrend channel off the April high and is now rallying, with decent performance today,” Coe added. “The price is bouncing from support at the 50-day exponential moving average (EMA) and should extend up to at least the high from May at $42.20.”

A rotation to noncyclical sectors such as consumer staples and utilities can be a sign that investors are lightening up on risk. [Utilities, Consumer Staples ETFs in the Doghouse in May]

XLP offers exposure to mega-cap household names whose products consumers generally continue to buy regardless of the economic climate, and could also be viewed as a defensive portfolio tilt, says Morningstar analyst Robert Goldsborough.

“Companies held in this fund generally have stable revenue growth and cash flows,” the analyst said in a profile of the ETF.

Consumer Staples Select Sector SPDR

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.