Staples & tech sectors rising together is unusual

The pandemic has led to an unusual parallel strong performance in both technology and consumer staples sectors, as demonstrated by Kroger Q2 earnings.

Kroger stock is up 0.6% on Friday in reaction to stellar Q2 earnings that crushed estimates and a new share buyback program. Kroger reported EPS of $1.03 up from $0.37 last year. Importantly digital sales soared by 127%. For the full year Kroger expects same store sales growth of 13%.

Kroger shares are up over 20% year-to-date handily outperforming the rest of the staples sector and the wider stock market. As the the S&P 500 plummeted in March, Kroger shares were volatile but spent as much time in positive territory as negative.

Consumer staples were first out of the gate when the market bottomed in March and have since maintained a performance in line with the broader market.
 

Chart

Kroger vs. Consumer Staples vs. Technology vs. S&P 500 (year to date)
(Source: FlowBank / TradingView, Sept 2020)
 

Definition

Consumer staples are essential products that include typical products such as foods & beverage, household goods, and hygiene products; but the category also includes such items as alcohol and tobacco. These goods are those products that people are unable—or unwilling—to cut out of their budgets regardless of their financial situation. (Source: Wikipedia)
 
The shares are considered ‘non-cyclical’ - meaning they move independently to the economic cycle. 
 

The story

Staples shares were bid up on the belief that the hoarding of packaged food and beverages during the pandemic bolstered demand for these companies’ products. Now after Q2 earnings season, that belief has been backed up by the numbers and the shares have continued to perform.

It has been unusual to see a market where consumer staples, considered a safe investment in times of uncertainty - has a slightly higher return than the overall market. And at the samke time a prominent staples company - Kroger is performing as well as an index of technology companies.
 
Should global growth continue to recover, perhaps supported by a coronavirus vaccine, staples shares might underperform. However, the enduring strength of staples would also indicate that the rise in tech stocks shows a level of complacency about the future economic environment. 
 

How to play it

These Exchange traded funds track consumer staples
 

ETF Symbol

ETF Name

XLP

The Consumer Staples Select Sector SPDR

PBJ

Invesco Dynamic Food & Beverage ETF

EXH3

iShares STOXX Europe 600 Food & Beverage UCITS ETF (DE)

VDC

Vanguard Consumer Staples ETF

 
For those looking to trade individual equities, below are the largest Food and Beverage companies by market capitalisation as well as recent market-darling Beyond Meat.
 

Share ticker

Company name

Market Cap (USD)

NESN

Nestle

307.5 billion

PEP

PepsiCo

159.4 billion

KO

Coca-Cola

204.89 billion

KHC

Kraft-Heinz

134 billion

ABI

Anheuser-Busch InBev

175.7 billion

MDLZ

Mondelez

75 billion

EPA: BN

Danone

43.1 billion

LON:DGE

Diageo

98.2 billion

3799 (HKG)

Fujian Dali Group

64.3 billion

BYND

Beyond Meat

8.2 billion

 

 

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