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Staples Sector Shows Signs of Potential Rebound

This article was originally published on ETFTrends.com.

Nearly halfway through 2018, it is fair to say the consume staples sector is disappointing. The Consumer Staples Select SPDR (XLP) , the largest exchange traded fund dedicated to the sector, is off about 10% year-to-date, underscoring the point that consumer staples is one of the worst-performing groups in the S&P 500 this year.

XLP devotes more than half its weight to beverage makers and food and staples retailers. Tobacco companies, which have recently seen their shares tumble, account for almost 12% of XLP’s roster. In better news, the sector has recently shown signs of potentially rebounding. XLP is up more than 3% this month.

“But the group has recently been showing signs of life, bouncing 3 percent in June and one chart watcher sees two names that could lead the group higher,” reports 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.

Looking For Momentum

XLP and other staples ETFs have some work to do before regaining investors' confidence. For its part, XLP resides 5% below its 200-day moving average and 13% below its 52-week high. Costco (COST) could be a source of strength for the downtrodden sector.

“Costco shares hit a higher low in early June, roughly 2.6 percent above the previous low made in early May. The stock hit its highest level on record in intraday trading Wednesday,” according to CNBC.

Related: Time to Nibble at Consumer Staples ETFs?

Defensive sectors often trade at premium valuations relative to the broader market and that is certainly the case at the moment with the consumer staples and utilities groups. The consumer staples sector is also viewed as inversely correlated to rising interest rates. The Federal Reserve hiked rates again Wednesday and hinted that two more rate hikes could be coming later this year.

Cyclical sectors are this year’s best-performing groups. That could be further confirmation investors expect interest rates to rise because cyclical sectors usually perform well as borrowing costs increase.

Rivals to XLP include the Vanguard Consumer Staples ETF (VDC) and the Fidelity MSCI Consumer Staples Index ETF (FSTA).

For more information on the consumer sector, visit our consumer staples category.