Here's Why Consumer Staples ETFs Are Rising This Year

The S&P 500 Consumer Staples (Sector) index has gained 20.5% year to date. The sector is known for its non-cyclical nature and acts as a safe haven during erratic market conditions. Moreover, like utilities, consumer staples is considered a stable sector for the long term as its players are likely to offer decent returns (read: Top-Ranked ETFs That Crushed the Market in a Month).

What’s Driving the Upside?

Trade war tensions between the United States and China have been increasing the appeal of consumer staples stocks. This is because such stocks generally outperform during periods of low growth and high uncertainty.

Per a Wall Street Journal report, China is refusing to mention a figure for the farm purchases annually on the agreement. President Trump had earlier announced that China had agreed to purchase up to $50 billion of soybeans, pork and other farm products from the United States annually. Moreover, going by a CNBC article, United States is demanding a stricter approach by China to regulate intellectual property protections and control forced technology transfers. Moreover, Trump’s latest warnings to raise tariffs if both sides fail to reach a deal have made investors jittery. However, per the latest updates, the United States and Beijing are close to striking a trade deal. In fact, China has recently removed its 4-year-old ban on U.S. poultry shipments (read: Phase 1 Trade Deal or Not: ETFs to Ride the Trend).

Moreover, the U.S. central bank has cut rates in October for the third time in 2019. This is likely to lower bond yields and favor consumer staples ETFs. With falling rates, a rate-sensitive sector like Consumer Staples has every reason to outperform. These sectors are high-yielding in nature and should thus perform better in a low-rate environment.

Also, the sector has witnessed a decent earnings season. About 87.5% of the consumer staples market cap in the S&P 500 has so far reported Q3 earnings, registering 1% earnings growth on 5.7% higher revenues. Beat ratios have been decent with 78.6% of the companies surpassing earnings estimates and 50% beating on the top line. 

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