Our biggest out of consensus call is to overweight the much maligned consumer staples sector.
One of the most glaring divergences between our macro indicators and relative share price performance exists in the consumer staples sector.
Since the U.S. election, this sector has been used as a source of capital to fund more speculative investments in areas levered to global economic growth, such as industrials. An exploitable undershoot has developed in a sector with one of the best 12 and 24-month track records during Fed tightening cycles. The sector is undervalued, and is resting at an oversold extreme, based on our Technical Indicator.
Our Cyclical Macro Indicator for the sector is grinding higher, Supported by consumers’ persistent preference for saving vs. spending, a plus for retail sales at non-discretionary stores. Tack on a budding recovery in consumer staples exports (bottom panel), and the nascent acceleration in sector sales growth should strengthen further, supporting earnings outperformance.