U.S. consumer staples stocks limp after solid performance in 2022
Adds analyst comment
By Medha Singh
Jan 20 (Reuters) -Shares of U.S. grocers, packaged food companies and supermarkets were lagging in the first three weeks of 2023, in a sharp contrast to last year, as their high valuations and fading dividend appeal pushed investors to U.S. Treasuries.
The S&P 500 consumer staple sector .SPLRCS, along with other bond proxies including real estate .SPLRCR and utilities .SPLRCU, outperformed the broader market in 2022 amid recession fears, as investors sought shelter in dividend-paying companies.
In a reversal of the trend, consumer staples sector has shed 3.4% in 2023, the most among the major S&P sectors, while the S&P 500 .SPX has climbed 1.5% on easing bets of a severe economic downturn.
"Fundamentally, investors are starting to recognize the valuation of staples as a whole, which trade at a 25% premium to historical averages," said David Wagner, portfolio manager at Aptus Capital Advisors LLC.
"You couple this with the fact that there are other yield alternatives now relative to the yield-rich sector of staples."
Rising interest rates have lured investors towards robust payouts in U.S. government bonds for the first time in nearly a decade.
The U.S. 10-year Treasury yield US10YT=RR stands at 3.4%, while the consumer staples sector is offering a dividend yield of 2.7%, according to Refinitiv data.
Consumer companies, which witnessed soaring demand for groceries and cleaning supplies during the peak of the pandemic, are now battling a triple whammy of low sales volumes, high input costs and a stronger dollar, as evidenced by results from Procter & Gamble Co PG.N on Thursday.
The bellwether for consumer products companies warned of profit pressures due to high commodity prices, as well as inflation-weary shoppers cutting back.
Quarterly reports from Unilever ULVR.L, Coca-Cola Co KO.N, PepsiCo Inc PEP.O, Colgate Palmolive Co CL.N, Kellogg Co K.N and Hershey Co HSY.N in the coming weeks will shed more light on the health of the sector and set the tone for its performance during the year.
Investors have also piled into rate-sensitive tech and growth stocks, which were clobbered in 2022.
Communication services index .SPLRCL that houses Meta Platforms META.O and Alphabet Inc GOOGL.O, and consumer discretionary .SPLRCD that includes Amazon.com AMZN.O are leading gains in 2023 in the run-up to the companies' earnings.
"You get more defensive in periods of economic stress... but earnings will triumph for the next couple of weeks," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
"It's always where the rubber meets the road."
Bond proxies versus Treasury yieldshttps://tmsnrt.rs/3XGUPGu
Reporting by Medha Singh and Chuck Mikolajczak in Bengaluru; additional reporting by Ankika Biswas abd Uday Sampath; Editing by Shinjini Ganguli
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