Consumer staples are companies that produce essential products that consumers cannot or will not eliminate from their budgets, regardless of their financial circumstances. As a result, these companies are often seen as impervious to business cycles. Stocks in the consumer staples sector are typically classified as non-cyclical or defensive stocks (https://www.investopedia.com/terms/c/consumerstaples.asp).
I examined recent stock market trends to determine if this characteristic still holds true. Specifically, I aimed to assess whether consumer staples continue to offer a defensive shield compared to other sectors throughout economic cycles. To this end, I sought to answer the following questions:
- What is the correlation between consumer staples sector returns and nominal GDP growth? How does this compare to the correlation of other sectors’ returns to GDP?
- What is the sensitivity (beta) of the consumer staples sector to GDP? How does this compare to the sensitivities of other sectors?
- How has the risk/return profile of the consumer staples sector evolved over time relative to GDP growth compared to other sectors?
Collection of Data
The indices “^SP500–30,” “^SP500–4010,” “^NDXT,” “^GSPC,” and “^SP500–25” were used as proxies for the Consumer Staples, Banking, Technology, Broad Market, and Consumer Discretionary sectors, respectively.
