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After a Rally, Some Advise Caution With Staples ETFs

This article was originally published on ETFTrends.com.

Buoyed by some solid earnings reports from marquee components, the Consumer Staples Select Sector SPDR ETF (XLP) , the largest exchange traded fund tracking the consumer staples sector, jumped more than 4% last week.

Some market observers believe the sector could be poised to cool off over the near-term. Some analysts believe the group’s comeback is the reveals investors’ willingness to pay a premium for protection against unexpected pullbacks during a times of greater uncertainty, the Wall Street Journal reports.

“The traditionally defensive group benefited in part from blowout earnings from Procter & Gamble, which reported its biggest quarterly sales gain in five years. Investors turned to the group earlier in the week, too, amid broad market volatility,” reports CNBC.

Muted Rebound

Investors typically shift into consumer staples during bouts of market volatility because of the sector’s relatively generous dividend payouts and the slow-and-steady nature of the consumer staples business – consumers usually continue purchase basic products that staples firms sell regardless of market or economic conditions. Consequently, investors view the staples sector as a relative haven in the equities market that may help somewhat insulate a portfolio from risks like rising interest rates and increasingly restrictive trade policies under the Trump administration.

XLP and rival consumer staples have been plagued this year by the strong dollar and trade spats between the U.S. and other nations, among other factors.

“From a technical perspective, consumer staples may run into some technical headwinds in the near term, said Blue Line Futures president Bill Baruch,” according to CNBC.

XLP provides “exposure to companies from the food and staples retailing, beverage, food product, tobacco, household product and personal product industries in the U.S.,” according to State Street.

“The XLP has been pretty constructive for the second half of the year. In fact, you've got a golden cross recently, and now you have the 100-day moving average looking to move above the 200 [day moving average]. But here's my problem. ... You have a trend line that's coming in right [around the $55 level], and that's going to pose a lot of resistance. Even today's move that's above the 50-day moving average and above a retracement level is going to run into a brick wall up there,” said Baruch in an interview with CNBC.

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