Key Drivers of the Consumer Staples Industry
Earnings is the main driver of these types of stock. The earning streams tend to be much more predictable than other sectors, and that’s usually why the stock behavior tends to be less volatile than the experience in other sectors, shown by the companies having a lower Beta.
Another one of the big drivers of the sector’s performance tends to be the direction of the overall economy. That is a reason why when investors start to become more nervous about the economy, they usually tend towards more perceived safety sectors such as staples, and in that environment staples tend to do better. When the reverse happens and investors are feeling significantly more optimistic about the economy, they tend to rotate into more cyclical sectors where there’s is a higher risk reward ratio. These have the potential for business conditions to go from being bad to relatively good over a short period of time, and the stocks in those sectors would follow those earnings.
In this scenario investor risk aversion levels are a key driver and the Consumer Staples sector should be viewed as one of the safer ETFs, mainly due to the fact that regardless of the economic climate, these items will have to be purchased with other sectors and subsequently ETFs suffering.
Source: SPDR ETF
Sector Top 10 Holdings (29/06/2012)
Financial Ratios (29/06/2012)
Source: Yahoo! Finance