The Consumer Staples sector is beginning to wake up from their long slumber. Does the market know something that most investors do not? I'll bet they do.
The Consumer Staples sector is hinting that the economic and market cycle may be approaching the next bear market phase. For impatient investors, you may have to wait until the summer and fall months to reap your reward, but clearly the recent movement in the group is giving us a heads up.
Staples normally do well as the economy weakens, and despite the recent moves in the stock market, the defensive sector is showing signs of life. During the bear market phase of 2000-2002, area's such as Beverages, Household and Personal Care, Tobacco, and Foods did very well.
In the IA portfolio, we played the contrarian role and picked up a few defensive bargains to prepare ourselves for future economic and market weakness.
We currently own KO, BUD, NSRGY, and XLP.
A weak dollar is good news for the Staples sector since many of these companies generate a healthy portion of their revenues from overseas business. As the market weakens, investors like to gravitate to more conservative investments, and the Staples sector provides a good mix of guaranteed results and returns.
As we seem to be nearing the end of this 42 month cyclical rally, the Staples sector will attract more money as the monthç´ progress. My best guess is we are 3-6 months away from a fundamental shift that will allow the defensive sectors to outperform the major market averages.
