Beer, Cigarettes and Laundry

JC Parets
January 3, 2021

Consumer Staples stocks are breaking out to new all-time highs. These are the stocks representing the companies whose services and products we as consumers would still buy regardless of how bad the economy might be. These stocks historically outperform by a lot when stocks in general are under pressure, which makes sense right?

I mean, no matter what, we're still going to brush our teeth and wash our dishes, drink beers and smoke cigarettes. Those are the "Consumer Staples": Procter & Gamble, Pepsi, Philip Morris, etc.

When stocks are doing well, you'll see Staples underperforming, because money is less willing to pay up for those defensive less growthy stocks. I wrote about this here and how this plays into our approach in the current market environment.

Anyway, here are Staples breaking out to new highs, and key extension level:

What is key to remember here is that while it is true that Staples outperform in bear markets and/or environments where stocks are under pressure, that doesn't mean that them going up is necessarily bad for the market.

In fact, new highs for Consumer Staples is just a characteristic of market environments where stocks in general are going up:

It's when they're outperforming stocks, and Consumer Discretionary in particular, that signals that things are changing for the worse. Discretionaries would be things like Retailers, Homebuilders and Auto stocks: Amazon, Home Depot, GM and Pulte Homes, for example.

New highs in the ratio between Discretionaries and Staples is consistent with a market where stocks are going up. And that's what's happening here.

So higher prices for Consumer Staples don't have any negative implications for markets.

But you know what they do have? Positive implications for stocks in the Consumer Staples sector, as they break out to new highs.

Take for example good old Church & Dwight. This is one that historically has made sense to buy on any pullbacks. And not to get all fundamental on you guys, but don't people have more time on their hands to use their products these days?

If CHD is above 80, I like it long with a target of 123.

Also take a look at Boston Beer. If SAM is above 960 I like it long with a target up near 1474

Are you looking for things that are not Tech? Or Small-cap?

Take a look at some of these Staples heading into 2021.

 

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