The rush to hide from technology stocks has made even the market’s usually staid defensive sector look expensive Investors fleeing technology stocks in October have found a safer place to hide: consumer stocks of toothpaste and laundry-detergent makers and sellers. Yet those “safe havens” are getting more expensive than high-growth AI names they decided to leave behind. The S&P 500’s consumer-staples sector has been a surprise winner within the large-cap benchmark index so far in October, as a sharp selloff in technology names dragged down growth-related sectors and gave some traditionally defensive names room to shine.
As a result, consumer-staples stocks — companies that sell food and essential household products that people always need regardless of economic conditions — already have popped nearly 9% this month, according to FactSet data. That compares with the S&P 500’s less than 1% gain and the information-technology sector’s 3.8% drop during the same period. What's next for SpaceX as more shares enter the market and capex jumps Play video: What's next for SpaceX as more shares enter the market and capex jumps The rally in consumer staples also upended a longstanding market dynamic.
Tech no longer ranks as the S&P 500’s most expensive sector, something it has long commanded on expectations of faster earnings growth and high margin potential. Staple names, which include Costco Wholesale , Walmart Inc. and Colgate-Palmolive , have taken that crown. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. Consumer-staples stocks normally trade at lower, more defensive multiples because of steady growth and reliable dividends.
But that doesn’t seem to be the case any longer. The S&P 500’s consumer-staples sector traded at a forward price-to-earnings ratio (P/E) of 23.8 as of Tuesday morning, compared with 19.8 of the information-technology sector, according to FactSet data. When a stock or sector is “overvalued” it can mean it’s expensive based on earnings projections.
Parts of the staples group do look expensive. Walmart and Costco are trading at roughly 42 and 48 times forward earnings, respectively, despite projected earnings growth that’s well below that of the tech sector. But when investors get nervous about the outlook of the artificial-intelligence trade or the health of the economy, they often rotate into defensive sectors, such as consumer staples.
Extract — continue reading at the source.
