Consumer Staples Marginally Outperforms S&P 500

04/16/14 12:11PM EDT

Consumer Staples Marginally Outperforms S&P 500 - wallstreet

Consumer Staples (XLP) outperformed the broader market last week, falling -0.5% versus the S&P 500 at -2.6%. XLP is down -0.5% year-to-date vs the SPX at -1.8%.

For a sixth straight week, XLP is bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up. This is a material shift as the sector traded bearish TRADE and TREND for the majority of the year-to-date.

Consumer Staples Marginally Outperforms S&P 500 - 2

Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 2014 Q1 theme of #InflationAccelerating, and Q2 theme of #ConsumerSlowing.
     
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth.
     
  • The sector is loaded with a premium valuation (P/E of 18.8x).
     
  • Less sector Yield Chasing as Fed continues its tapering program.
     
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index has not seen any real improvement over the past 6 months, and declined to -31.9 versus -30.0 in the prior week.

Consumer Staples Marginally Outperforms S&P 500 - 4

Consumer Staples Marginally Outperforms S&P 500 - 5

Consumer Staples Marginally Outperforms S&P 500 - 6

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Editor's Note: This is an excerpt of a research note that was originally provided to subscribers on April 14, 2014 by Hedgeye Consumer Staples Analyst Matt Hedrick. Follow Hedgeye's Consumer Staples sector @HedgeyeStaples.

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