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Takeaway: The sector is loaded with a premium valuation (P/E of 19.6x).

Continue to Tread Carefully in Consumer Staples | $XLP - brazil

Consumer Staples was flat week-over-week versus the broader market (SPX) up 1.2%. XLP is up 3.0% year-to-date versus the SPX at 2.8%. 

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 19.6x).
  • 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, and fell to 34.1 versus 34.9 in the prior week.

Continue to Tread Carefully in Consumer Staples | $XLP - 4

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Editor's Note: This is an excerpt of a research note that was originally provided to subscribers on May 27, 2014 by Hedgeye Consumer Staples analyst Matt Hedrick. Follow Hedgeye's Consumer Staples sector @HedgeyeStaples.

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