Consumer Staples Sector Rating: Marketperform

What is the consumer staples sector?

The consumer staples sector comprises businesses that tend to be less sensitive to economic cycles. It includes makers and distributors of food, beverage and tobacco products, non-durable household goods and personal products, and food and drug retailers.

Consumer staples sector overview

Consumer staples companies, typically viewed as a safe haven during periods of market volatility or economic downturn, may perform well if market uncertainty increases. Staples companies also have benefited in recent years from effective cost-cutting and increased geopolitical nervousness lately. On the other hand, improving global economic growth should dampen investor enthusiasm for the staples sector. 

Market outlook for the consumer staples sector

Companies in the consumer staples sector generally deal with tight profit margins, but they have done a better job in our view of containing costs in recent years.

However, improving global economic growth could dampen enthusiasm for the staples sector, whose traditionally steady earnings are often viewed as more attractive when economic growth is sluggish or declining. The economic outlook for the U.S. continues to be for decent growth although some estimates have been reduced lately, notably by the IMF (International Monetary Fund) as prospects for fiscal stimulus appear to some to be reduced. Global growth is starting to show signs of improving, as PMI readings from various regions have risen in the last several months, according to Markit. 

When market volatility picks up, the consumer staples sector is often viewed as a port in the storm. Temporary increases in domestic political and geopolitical tensions could help support the group for short periods going forward, although that has not happened over the past few months as the group has underperformed modestly. Additionally, given continued uncertainty over the pace at which the Federal Reserve will raise short-term interest rates and reduce its balance sheet, having a market-weight position in the staples sector seems prudent in order to provide some stability to an investment portfolio. 

Factors that may affect the consumer staples sector

Positive factors include:

  • Aggressive cost-cutting: Consumer staples retailers have aggressively cut costs and are attempting to create more perceived value for consumers, which could support sales.
  • Increase in volatility: If volatility in the market increases, the traditionally stable consumer staples sector may become more attractive to investors.
  • Increased geopolitical and domestic political anxiety: As geopolitical and domestic political tensions rise, investors typically become a bit more nervous, and may seek short-term shelter in the staples sector. 

Negative factors for the consumer staples sector include:

  • Increased competition: Competition continues to accelerate due to the growth of low-cost, emerging-market production. This could shrink pricing power in the sector by compressing margins and squeezing earnings.
  • Accommodative monetary policy: Numerous central banks, with the notable exception of the Fed, are firmly in easing mode in an effort to stimulate the economy, which could hurt the more defensive sectors.
  • Stimulative fiscal policy: The current mix in Washington could implement policies aimed at stimulating the economy, which could hurt the staples sector, although hopes of that occurring in the near term appear to have diminished. 

Clients can see our top-rated stocks in the consumer staples sector.

Want to learn more about a specific sector? Click on a link below for more information or visit Schwab Sector Views to see how they compare.

Schwab Sector Views

Consumer discretionary

Consumer staples



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Next Steps

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