The Market’s Lone Loser: Why Consumer Staples Are Struggling
An AI-fueled rally in stocks has lifted nearly every corner of the market, except one.
It’s been a rough year for consumer staples. Out of the 11 GICS sectors, it’s the only one sitting in the red. The Consumer Staples Select Sector SPDR Fund (XLP) is down 3.8% year-to-date, compared to a 14.3% gain for the SPDR S&P 500 ETF Trust (SPY).
Traditionally considered a safe-haven sector, staples have fallen out of favor in a market obsessed with AI. From tech to communication services, industrials, and even utilities, anything benefiting from the data-center boom has soared. Everything else has been left behind, and staples have been hit especially hard.
They’ve become, in a sense, the anti-AI trade.
Weak Consumer, Shifting Tastes
Part of the story is cyclical. Consumers are stretched after years of inflation, the labor market is slowing, and confidence remains low. That’s not great for companies selling everyday essentials, which thrive when spending is steady and predictable.
There are also structural headwinds. Consumer tastes are changing, favoring smaller, fresher, and healthier brands over the legacy packaged-goods names that dominate the sector. And the rise of GLP-1 weight-loss drugs could dent demand for snack foods and sugary beverages.
Retailers Hold Up
With nearly $15 billion in assets, XLP allocates about 11% to Walmart, 10% to Costco, 8% to Procter & Gamble, 6.5% to Coca-Cola, and 5.7% to Philip Morris International.
Retail and distribution make up roughly a third of the fund, followed by beverages (19%), food products (18%), household goods (17%), and tobacco (10%).
Analysts at Bank of America noted earlier this year that performance within consumer staples has become increasingly “stratified,” with large-cap retail stocks leading the way while other names lag behind.
That pattern has continued this year. Walmart is up 13% this year, while Costco has gained about 1%. But other big names have gone the opposite direction. Procter & Gamble is down 12%, PepsiCo 5%, and Colgate-Palmolive 13%.
So even though the retailers have helped cushion the blow, their strength hasn’t been enough to offset weakness elsewhere in the sector.
Of course, underperformance from staples isn’t unusual in an environment like this. Investors prefer more exciting growth stories when optimism is high. The sector still plays a defensive role, and it’s likely to have its moment again eventually.
For now, though, staples have been left behind in a market chasing AI.
