Last week, Consumer Staples (XLP) traded in-line with the broader market, rising 0.9%. XLP is up 2.68% year-to-date versus the SPX at 1%.
Our Consumer Staples team continues 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 1Q14 theme of #InflationAccelerating, and Q2 2014 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 19.4x) > see chart below.
- Less sector Yield Chasing as Fed continues its tapering program.
- The high frequency Bloomberg weekly U.S. Consumer Comfort Index (recently rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months.
As Hedgeye CEO Keith McCullough tweeted earlier today, “We remain short of consensus US growth expectations.”
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Editor's Note: This is an excerpt of a research note that was originally provided to subscribers on May 5, 2014 by Hedgeye Consumer Staples analyst Matt Hedrick. Follow Hedgeye's Consumer Staples sector @HedgeyeStaples.