Photographer: Daniel Acker/Bloomberg

Soap Makers Morph Into Market Wild Child During U.S. Stock Rally

  • Consumer staples notch most volatile stretch since in 16 years
  • Rotation into cyclical shares sends defensives lower

Consumer staples are supposed to be the slow and steady part of an equity portfolio, not the one that keeps an investor up at night.

Companies that peddle soap, diapers and chicken breasts just turned into one of the most volatile cohorts of the S&P 500 Index, delivering price swings greater than any time in the past 16 years. Most of the moves have been lower, making the group one of the worst performers during the post-election rally.

Staples started acting up after Donald Trump’s Nov. 8 election spurred bets on increased fiscal spending and less regulation, fostering an appetite for stocks that do better during times of economic growth. That left defensive shares ripe for a pullback, especially after the group’s valuations had reached the highest since 2012 relative to the S&P 500. At the same time, the Federal Reserve looks certain to raise interest rates next week, damping demand for income-producing stocks.
“The economy was strengthening from a cyclical standpoint, and that in itself would suggest that defensive sectors like staples should be more vulnerable,” said Alan Gayle, a senior strategist at RidgeWorth Investments in Richmond, Virginia. “Then you had the catalyst of a shift to a more pro-cyclical stance happening with the election.”

The group’s volatility relative to the S&P 500 is a role reversal, with the broad equity gauge 17 percent times more jumpy on average over the past five years. Among the more wildly swinging stocks are chicken producer Tyson Foods Inc. and beauty manufacturer Coty Inc., which plunged more than 19 percent in November. The S&P 500 gained 3.4 percent over the same period.

— With assistance by Kevin Kelly

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