We recommend an underweight position in the S&P 500 Consumer Staples sector. At first glance, the sector looks fine. Its stock price index is near a record high (chart). Consumer Staples could turn out to be a haven if AI exuberance is fueling a tech bubble that bursts.
On the other hand, Consumer Staples is up 6.5% ytd, ranking 7th among the 11 S&P 500 sectors and trailing the S&P 500's 10.7%. Since the current bull market began on October 12, 2022, the sector is up 30.7%, second-worst of the 11 sectors, ahead of only Health Care (chart). The defensive rotation that some have called has not come to fruition. A sector trading at a market-plus multiple on muted earnings and revenue growth is one to underweight, not to chase, in our opinion.
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