As the coronavirus crisis is causing deep shocks to the stock market, consumer staples stocks are acting as the best defense.
Sunday, President Trump congratulated the Federal Reserve for reducing further the fed funds rate from 1-1.25% to 0-0.25%.
Investors haven’t received well this monetary measure aimed at stimulating the economy, as coronavirus keeps spreading and causes quarantines in many countries. The U.S. stock market plunged sharply at the opening on Monday. A trading halt was even been triggered after the S&P 500 fell by more than 7%.
But a few stocks stand up in this bloodbath. Boring staples stocks like Conagra Brands, Clorox, and Campbell Soup are leading the S&P 500.
Consumer staples are non-cyclical or defensive stocks. In short, movements of the economy don’t impact them. On the other hand, market downturns affect cyclical stocks, like airlines and hotel chains. Those stocks tend to perform better during periods of expansion than during recessions.
Because of their nature, consumer staples tend to perform better than other sectors during economic downturns. Companies in those sectors sell products or services that are essential to people.
For instance, Clorox (NYSE: CLX) sells toilet paper and hand sanitizer. People are loading up on these essentials to be prepared for the coronavirus threat. Sick people will also buy more tissues. Thus, Clorox benefits from the coronavirus crisis.
Food companies also benefit from the pandemic, as people are going to grocery stores to make provisions of non-perishable food.
It’s hard to tell how long the coronavirus crisis will last. People still need to eat even if they cannot leave their homes. That’s why companies like Conagra brands (NYSE: CAG), J M Smucker (NYSE: SJM) and Campbell Soup (NYSE: CPB) are doing well.
Having a few consumer staples stocks can help investors hedge against coronavirus-related shocks. Those stocks aren’t the best performers in a bull market, but when the market goes down, they usually go up.
A portfolio containing staples should have fewer losses than one that is just invested in cyclical stocks. Plus, many staples pay a dividend. A regular income is always nice to get, particularly during hard times.
Disclaimer: The above should not be considered trading advice from CCN.com. The opinions expressed in this article do not necessarily reflect the views of CCN.com.
This article was edited by Sam Bourgi.