Retail stock woes hit consumer ETFs as S&P 500 edges closer to bear market territory
Good morning! It’s been a brutal week for consumer stocks, as the S&P 500 index edges closer to bear market territory.
“My indicators suggest that the bear market movement may continue into the summer months,” said Katie Stockton, founder and managing partner of Fairlead Strategies, in this week’s ETF Wrap. It also says its recently launched Fairlead Tactical Sector ETF could help “hedge risk in this type of environment.”
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In a brutal week for retail stocks, the defensive Consumer Staples sector was not spared.
SPDR Consumer Staples Select XLP Fund,
fell 6.4% on Wednesday, while the Consumer Discretionary Select Sector SPDR Fund XLY,
fell 6.5%, according to FactSet data.
The carnage occurred in a broader stock market crash, with the S&P 500 SPX,
down 4% on Wednesday, for its biggest daily decline since June 2020. The S&P 500 consumer staples and consumer discretionary sectors posted their biggest percentage declines since March 2020 on Wednesday, according to Dow Jones Market Data .
“We’re in a bear market move,” with strong relief rallies presenting “better selling opportunities until you get to a long-term bottom,” said Katie Stockton, founder and managing partner of Fairlead Strategies. , in a telephone interview. “My indicators suggest that the bear market movement may continue into the summer months.”
Stockton is the portfolio manager of the recently launched Fairlead Tactical Sector ETF,
an active US equity fund that uses a systematic strategy and is rebalanced monthly. The fund, which began trading on March 23, is doing better than the S&P 500 index so far.
Shares of the Fairlead Tactical Sector ETF are down 1.8% this month through Wednesday, after falling 3.3% in April, according to FactSet data. That compares to the S&P 500’s 8.8% drop last month and a 5% drop from May to Wednesday.
“Over the life of the fund, it has increasingly avoided risk,” Stockton said, thanks in part to a more defensive sector positioning that includes exposure to consumer staples. She said the ETF can help “protect downsides in this type of environment” where stocks are selling.
The S&P 500 was trading Thursday afternoon, approaching bear market territory, which it would enter with a close of around 3,837, according to data from the Dow Jones Market.
The Fairlead Tactical Sector ETF, which invests in SPDR ETFs, moved to a 50% position in SPTS Treasuries in the short term,
SPTL long-term treasury bills,
and gold GLD,
Stockton said that while the fund’s sector exposures are “rather defensive”, including consumer staples XLP,
real estate XLRE,
and XLE energy,
Consumer staples is seen as a defensive sector, but it took a beating this week, as reported by Target Corp’s reported revenue losses. TGT,
and Walmart Inc. WMT,
heightened investor fears of recession amid fears that high inflation could squeeze American spending.
Lily: Target stock plunges as earnings fall on changes in consumer spending and rising transportation costs
The Vanguard Consumer Staples ETF VDC,
Invesco S&P 500 Equal Weight Consumer Staples ETF HRH,
and Fidelity Covington Trust MSCI Consumer Staples Index ETF FSTA,
all fell more than 6% on Wednesday, according to FactSet data.
Walmart, a retail giant in the S&P 500 consumer staples sector, is down about 19% this week, based on Thursday afternoon trading levels, according to FactSet data, when last checked. And Target, a department store chain in the struggling consumer discretionary sector of the S&P 500, has fallen about 30% this week, based on Thursday afternoon trading.
Lily: If you thought Walmart and Target had disappointing earnings, these retailers did much worse
So far this year, the Consumer Discretionary Select Sector SPDR Fund has plunged 30% through Wednesday, far outpacing the Consumer Staples Select Sector SPDR Fund’s nearly 7% decline over the same period, according to data. FactSet data.
“Inflation always hits low-income cohorts hardest and first,” according to a May 18 note in Sevens Report Markets. Walmart’s earnings results “imply that’s starting to happen now,” the report said, warning that “a further economic downturn” is likely to weigh on the consumer discretionary sector’s SPDR fund more broadly.
The Sevens suggested that Walmart’s results “reprove somewhat the ‘defensive’ nature of consumer staples, at least partially,” while also highlighting the consumer shift the retailer has seen toward brands instead of “private label” as a sign of inflation weighing on consumers.
Lily: Walmart says consumers are opting for private label for products like dairy and bacon
“The shift from brand names to generics is a potential threat” for Procter & Gamble Co. PG,
which is the biggest holding in the Consumer Staples Select Sector SPDR Fund (XLP), according to the Sevens report. “We don’t think this invalidates Consumer Staples as a defensive play, but it does imply that an equal-weighted ETF might be better than XLP at diversifying risk a bit more.”
The Invesco S&P 500 Equal Weight Consumer Staples RHS ETF,
“Consumer staples are evenly matched in the S&P 500, offering greater diversification in the face of changing consumer trends,” according to the report. Shares of ETF Invesco S&P 500 Equal Weight Consumer Staples are down about 3% this year through Wednesday, according to FactSet data.
As usual, here’s your weekly look at the best and worst performing ETFs from last week through Wednesday, according to FactSet.
|The worst performers||%Performance|
Xtrackers MSCI Kokusai Equity ETF KOKU,
Vanguard Consumer Staples ETF VDC,
Invesco S&P 500 Equal Weight Consumer Staples ETF HRH,
Consumer Staples Select Sector SPDR Fund XLP,
Fidelity Covington Trust MSCI Consumer Staples Index ETF FSTA,
Source: FactSet, until Wednesday May 18, 2022 excluding ETNs and leveraged products. Includes ETFs traded on the NYSE, Nasdaq and Cboe of $500 million or more
Some ETF launches:
Simplify Asset Management said on May 17 that it was launch the Simplify Macro Strategy ETF FIG,
a fund that aims for “equity-like returns with lower volatility” by investing in equities, fixed-income securities, alternative ETFs and derivatives.
Teucrium Trade announcement May 17 that the Teucrium No K-1 ETF TILL agricultural strategy,
would begin trading on the New York Stock Exchange. The actively managed fund provides exposure to futures prices in the corn, wheat, soybean and sugar markets using a “long only” strategy.