It’s not easy being a stable Eddie. In last year’s bear market, consumer staples – the epitome of steady stock performance – were a relative haven. Then, as investors regained their appetite for risk, they fell out of favor, too
Consumer Staples Select Sector SPDR
exchange-traded funds are down about 2.5% year-to-date, even as
S&P 500
the index is in black.
But now, in the middle of the banking crisis, they are back. Over the past five days, the S&P 500 rose 1.42% despite the banking crisis, while the Consumer Staples Select ETF rose nearly 1%. Some favorites have fared even better, notably best-in-class operators who have reported robust trends and growing sales in the face of inflation. Over the past week, Procter & Gamble rose 4.11%, Colgate-Palmolive rose 1.21%, Mondelez International 2.31% and PepsiCo 1.8%.
It is not surprising. Rising interest rates may dull the appeal of these companies’ dividend yields, but that has been largely offset by investors clamoring for safety. A bonus: Over the past year or so, a number of consumer discretionary stocks have shown significant pricing power, reducing some of the inflationary pressure on profits. The sector’s underperformance earlier this year also trimmed their multiples after valuations were bid up through 2022.
Barron’s argued earlier this year that select consumer staples were still worth investors’ attention. If Tuesday’s rally isn’t the end of the market’s banking turmoil — and it doesn’t look like it — the sector as a whole could find itself back in favor.
Write to Teresa Rivas at teresa.rivas@barrons.com
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Last week
Infection
As the week began, US bank crashes rattled markets around the world. Home, regional banks First Republic
,
PacWest Bancorp
,
Zions Bancorp
,
and Western Alliance Bancorp took a beating, although nonbank stocks held up. The broad market, including the banks, rose with an inflation figure that finally met economists’ expectations. But bank jitters continued as cash flowed into money market funds and government bonds, culminating in Thursday’s First Republic bailout. Friday brought no relief, but stocks mostly closed up for the week: Dow Industrials fell 0.15% to 31,861.98; The S&P 500 rose 1.42% to 3916.59; and the Nasdaq Composite rose 4.37% to 11,630.51.
Containment
Federal regulators shut down Signature Bank, which had exposure to crypto, after seizing Silicon Valley Bank and agreed to make depositors whole on both. The eternal debate over moral hazard and regulation took place, deposits flowed to the largest banks, and the Federal Reserve began a rethinking of mid-sized bank regulations. HSBC bought the UK arm of SVB for a pound and, after an initial failure to find a buyer for SVB, the FDIC sought bids for both banks. Later that week, 11 major banks put $30 billion into First Republic to quell the panic. Speculation began that the Fed was going easy on a rate hike to ensure financial stability.
Swiss credit
,
the postponement
Credit Suisse Group, the Swiss bank beset by financial scandals and losses, delayed its annual report and admitted “significant weakness” in identifying financial misstatements. The bank’s largest shareholder, Saudi National Bank, said it would not provide assistance. On Wednesday, Credit Suisse secured a $54 billion loan from the Swiss central bank and said it would buy back $3.2 billion in debt.
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China on the attack
China brokered a deal between Saudi Arabia and Iran, carving out a role for itself as a power broker in a region long dominated by the United States. The move is a blow to Israel, which has tried to isolate Iran. China will host a summit between Iran and the six-nation Gulf Cooperative Council later this year, and President Xi Jinping will travel to Moscow next week. The US agreed to sell three nuclear submarines to Australia.
Got stuck in Bakhmut
Battlefield continues in violence-stricken Bakhmut. Poland became the first Western country to supply Ukraine with jet fighters; Slovakia followed.
Annals of Deal Making
Silver Lake and Canadian pension fund CPP Investments agreed to buy SAP’s 71% stake in software analytics company Qualtrics for $25 billion…As expected, Pfizer announced it would buy cancer biotech Seagen for $43 billion, the biggest M&A deal of the year. .. The Wall Street Journal reported that Carl Icahn would nominate three directors to the board of gene sequencer Illumina
,
whose stock has been hurt by regulators holding up a deal for cancer screener Grail…Apollo Global agreed to buy plastics distributor Univar Solutions for $8.1 billion…The US told ByteDance it would ban TikTok unless it sold its American TikTok entity.
Write to Robert Teitelman at bob.teitelman@dowjones.com