The stock market is made up of many different “sectors” in which stocks fall based on the goods or services they provide. The S&P 500 Index, which tracks the biggest five hundred stocks in the U.S. Stock Market, and which is used as one of the most recurrent benchmarks for comparing investments, is made of ten different sectors. Most experienced investors (and often unexperienced investors) are familiar with the Consumer Staples Sector. For those that are not, or are learning the basics of investing, below is what you should know.
The Consumer Staples Sector is made of stocks from companies that sell products we use in our every-day lives. These products include household items, food and beverages, tobacco and personal products. They are considered non-cyclical stocks. This means that no matter where we are in the economic cycle, no matter what the financial landscape looks like, we are equally as likely to buy these products. How does this affect company stock? Consumer staple stock prices have less volatility than those stocks found in other sectors, which are more correlated to market performance. Consumer staples stocks are also well known for paying constant dividends. Because of this, they are considered “defensive.”
Given their defensive nature, many portfolio managers use consumer staples stocks to hedge or protect their investments against market downturns to some degree. Why? Because it is very likely that we will keep buying toilet paper, toothpaste, tobacco and food no matter what our financial situation may be.
If you have questions we encourage you to reach out to our team for assistance.
-Santiago Munoz, Financial Advisor
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