There’s a large camp among Wall Street analysts that assumes when the technology and other growth sectors plunge, the safety trade is in consumer staples. Those are the stocks that make the things we use for daily living. Toothpaste, soap, and just about anything they sell at Costco (COST), Walmart (WMT), or Target (TGT).
I’ve never been in that camp. Because in contemporary markets, it is more likely that even brief flights to quality will soon see those lower-volatility stocks succumb to whatever is ailing the broader market. In part, this is because these stocks tend to be richly valued to begin with, as the market respects their relatively stable financial conditions.
As you can see, that giant trio is part of the top 11 holdings of the S&P 500 Consumer Staples Sector SPDR ETF (XLP). Those top 11 holdings occupy about two-thirds of all the real estate within that exchange-traded fund (ETF).
A Closer Look at XLP
Clearly, XLP is in at least a mini upswing. Here’s the daily chart. It even has a PPO indicator (bottom of the chart) that is bordering on positive territory and sloping up nicely. Still, I think XLP looks more like it is headed for another short-term period of outperformance, rather than a renaissance. I see this type of chart a lot in the current market. That is, there’s upside room, but not near 10%. Even for a trade, I aim for at least a 10% gain and will settle for 5% if the pattern does not work out.
While XLP has shed its 2025 status as an artificial intelligence (AI)-overshadowed laggard sector, the question remains: Is this a genuine safety trade or simply a place to hide while waiting for the AI/tech stock bear market to strike?
This is a good indication of what I’m talking about. Over the past month, there have been lots of big wins and just as many losses within this portfolio. This is a typical look for XLP, since its stock holdings do many different things in their role as providers of consumer durable goods.
XLP is the giant of its space, as is the case with most of the SPDR sector ETFs. It is nearing $15 billion in assets. But selling at nearly 20x trailing earnings, as a basket, this ETF is not going to be a world-beater. And this is a market where earnings misses, or other negative events, can take a big chunk out of any single stock. WMT’s earnings are this week, and that event alone could shake the sector lower.
The Bottom Line
The consumer staples sector as a whole is experiencing a profound structural transition. For years, the sector was viewed as a dull but dependable defensive shelter. Today, it is much more subject to a split personality of sorts.
The fundamental reward of the sector lies in its undeniable pricing power. In an environment shaped by persistent sticky inflation and elevated input costs, major staples producers have successfully passed price increases directly down to the consumer without experiencing a devastating drop-off in volume. This confirms that broad-based household demand for daily essentials remains highly inelastic. But to me, that’s not a reason to jump into this sector with both feet. As part of a portfolio, and to scoop up stocks after they’ve been taken way down? Sure. But not broad-based. Especially when the safety trade is more likely to be more hardline, such as cash or maybe gold. It is just one more way in which markets don’t operate as they used to.
The allure of XLP lies in its low-beta profile, currently sitting at 0.49x relative to the S&P 500 Index ($SPX). However, the sector is not a monolith. While traditionally defensive, it has faced structural headwinds in 2026, including rising bond yields and evolving consumer behavior. But a smart diversifier is only as strong as its underlying holdings.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.
