Safe Haven Consumer Staples ETF Crumbles

May 19, 2022

Consumer staples stocks crumbled this week amid a plunge in shares of Walmart, Costco and others. The once-bulletproof sector started buckling on Tuesday after Walmart reported disappointing earnings. 

The megaretailer complained about the rising cost of labor, fuel and shipping, as well as a rapidly shifting demand environment in which consumers spent more on low-margin food and gas purchases and less on discretionary items.  

On Wednesday, competitor Target mentioned the same forces when discussing its underwhelming margins. The firm also said that a shift in consumer demand from bulky categories, including kitchen appliances, TVs and outdoor furniture, led to bloated inventories—something Target aims to rectify with price cuts.  

“While we anticipated a post-stimulus slowdown in these categories and we expect the consumer to continue refocusing their spending away from goods and into services, we didn't anticipate the magnitude of that shift,” the company noted on its earnings conference call. 

The double-whammy of bad news from two of America’s biggest retailers reverberated across sectors and across the entire equity market. This week, Walmart and Target saw their worst single-day declines since 1987, down 11.4% and 24.9%, respectively.  

Top ETF Holdings  

Walmart is a top-eight holding in the Consumer Staples Select Sector SPDR Fund (XLP). Costco, a top-four holding in the ETF, was also dragged down on margin concerns, even though it won’t report earnings until next week. On Monday, XLP was still hanging on to modest gains for the year. By Wednesday, it was down 6.4%.  

Meanwhile, even though it’s a direct rival to Walmart, Target is categorized as a consumer discretionary company by the Global Industry Classification Standard. You’ll find the stock in the Consumer Discretionary Select Sector SPDR Fund (XLY), not the aforementioned XLP. 

Unlike staples, consumer discretionary ETFs were already deep in the red for the year; the latest retail woes only exacerbated those losses. By Wednesday, XLY was down by a whopping 30% year –to date, led by steep declines in Target, as well as Amazon and Tesla—the two of which make up a whopping 38% of the ETF. 

 

YTD Returns 

 

With staples in the doghouse, only two sectors remain in the green for 2022: energy and utilities. Only one of those sectors can be considered a traditional “safe haven”—utilities—though some investors see energy as a haven against inflation.  

As of Wednesday’s close, the Utilities Select Sector SPDR Fund (XLU) was hanging on to a gain of 0.8% for the year, while the Energy Select Sector SPDR Fund (XLE) was up by 48.6%. 

 

Follow Sumit on Twitter @sumitroy2

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