S&P 500: Consumer Staples and Utilities to underperform the market – Charles Schwab

According to economists at Charles Schwab, Consumer Staples and Utilities are likely to perform worse than the broader stock market as represented by the S&P 500 Index.

Key quotes

“With additional fiscal stimulus, potential for a very effective vaccine now in late-stage trials, and accommodative monetary policies, we think that the economic recovery has a better chance of maintaining traction. At this stage of the business cycle, the consumer staples sector typically underperforms the overall market. While longer-term price momentum has held up, we think that growing confidence in the economy will weigh on relative performance going forward.”

“Valuations have been driven up in recent years as investors have reached for yield in this new era of low interest rates; this may decrease the sector’s traditional defensive characteristics. And while interest rates are expected to remain generally low, they could edge higher as the economy continues to expand. On the flip side, there is the potential for a renewed decline in the economy to push rates even lower, or there could be significant government funding to Utilities as part of clean-energy initiatives that would benefit the sector’s profit outlook.”