Caveats For US Consumer Staples

During 2008, the food, beverage and tobacco industries outperformed the S&P 500 (^GSPC) . Compared to the S&P 500’s decline of 37.0%, brewers increased 39.4% (due to the takeover of Anheuser Busch (BUD) by InBev), tobacco companies declined 22.3%, food companies declined 24.4%, and the soft drink group declined 28.5%. In addition, the personal and household product companies declined 26.5%.

The Consumer Staples sector began outperforming in April 2006, discounting the economy’s de-acceleration. In general, when stocks in the Consumer Staples sector begin to outperform after a multi-year period of languishing or basing, the stocks tend to continue to outperform for three years.

With the end of 2008, Consumer Staples will have outperformed the market on a total return basis for three consecutive years. Historically, the outperformance of Consumer Staples has lasted only three consecutive years, so the positive performance disparity is long-in-the-tooth. In addition, the relative performance has seasonal attributes with almost all the relative gain coming in the fourth quarter as investors flee more cyclical investments, which tend to disappoint near the end of the year.

In 2009, it is highly probable that Consumer Staples will underperform once stocks begin to discount the recovery out of the current economic abyss. This may begin to occur as early as in the first quarter.

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