A little more than three months ago I wrote an article saying so-called safe haven stocks aren't so safe. I pointed out that consumer staples stocks, as measured by the XLP — the popular consumer staples tracking ETF — were already off by 6 percent in early March. I take no pleasure in pointing this out, but that ETF is now down by double that percentage.
There are reasons for this:
- Strengthening in the U.S. dollar is making these companies' overseas profits less profitable.
- Interest rates have risen, both on the short and long ends of the yield curve.
The lowest close for the 10-year treasury yield in the past five years was 1.38 percent on July 5, 2016. It's been more than 3 percent lately. The S&P 500 is up over 27.9 percent in that time frame. The strong dollar hurts, but it looks to me like consumer staples are down mainly because of the move up in yields, and it appears to me that it's overdone at this point, for a few of them, at least. It's not only the grocery-store aisle subsector in consumer staples that's been hit hard. AT&T, 3M and Ford are all down year-to-date despite big dividend yields.