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Consumer Staples Sector Rating: Marketperform

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 could 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 and the sector has attracted investor interest lately as it was the best performing group in November.

However, improving global economic growth could limit 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 forward looking indicators such as jobless claims continuing to look positive, remaining near historically low levels. Global growth continues to look fairly good to us, with the majority of Markit surveys of managers around the world indicating continued positive economic performance.

When market volatility picks up, as it has recently according to the VIX (a measure of volatility), 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. Additionally, given continued uncertainty over the pace at which the Federal Reserve will raise short-term interest rates, 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: Retailers have aggressively cut costs and are attempting to create more perceived value for consumers, which could support sales.
  • Increase in volatility: With the recent spike in volatility, the traditionally stable consumer staples sector may become more attractive to investors.
  • Increase in merger and acquisition activity:  With competition fierce, we could see an increase in M&A action, which would help to reduce capacity and potentially provide economies of scale.
  • 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 more-defensive sectors, like consumer staples.
  • Stimulative fiscal policy: In addition to the tax reform package that passed, the current mix in Washington could implement further policies aimed at stimulating the economy, which could hurt the staples sector.

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.

Consumer discretionary Consumer staples Energy
Financials Health care Industrials
Information technology Materials Real estate
Telecom Utilities

What You Can Do Next

Consumer Discretionary Sector Rating: Marketperform
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Important Disclosures

Schwab Sector Views do not represent a personalized recommendation of a particular investment strategy to you. You should not buy or sell an investment without first considering whether it is appropriate for you and your portfolio. Additionally, you should review and consider any recent market news.

Performance may be affected by risks associated with non-diversification, including investments in specific sectors. Each individual investor should consider these risks carefully before investing in a particular security or strategy.

All expressions of opinion are subject to change without notice in reaction to shifting market and other conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Companies within the consumer staples sector may be significantly affected by demographic and product trends, commodity prices or other input costs, environmental factors, government regulations, economic fluctuations, interest rates, consumer confidence and spending, and other factors.

The Chicago Board of Exchange (CBOE) Volatility Index (VIX) is an index which provides a general indication on the expected level of implied volatility in the US market over the next 30 days.

Markit Manufacturing Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index includes the major indicators of: new orders, inventory levels, production, supplier deliveries and the employment environment


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