Broader domestic equity benchmarks turned in impressive showings through the first seven months of the year. A significant portion of that bullishness comes thanks to large- and mega-cap growth stocks.
Those names aren’t risky, per se. However, it’s not a stretch to say that risk appetite has been elevated this year. That’s a positive. Some market participants may still consider locking in growth stock-generated profits and establishing more defensive positions. That could spark renewed interest in sector exchange traded funds such as the Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS).
Not surprisingly, consumer staples equities have been sluggish this year as investors embraced higher growth opportunities. On the other hand, there are some signs of life among defensive staples names. For one, RSPS notched a modest gain over the past 20 days. The level of follow-through on that move remains to be seen. However, RSPS could be an attractive idea among sector ETFs if markets turn turbulent in the coming months.
RSPS: Pertinent Today
Consumer staples stocks and ETFs lack glitz and glamour, but these assets don’t lack near-term relevance. Especially not at a time when some professionals, including JPMorgan Strategist Marko Kolanovic, are suggesting defensive names could come into style.
“We have been adopting a more defensive stance in equities and credit in our model portfolio since last December by moving them progressively to a more significant underweight while retaining risk via a commodity OW,” Kolanovic wrote in a recent note to clients. “This defensive stance has not played out and as a result, we suffered a significant loss in our model portfolio YTD given the strong rally in equities and credit.”
The strategist acknowledged that the thesis backstopping defensive positioning is incurring headwinds as more economists dial back recession forecasts. He also argued that soft landing hopes may be misguided.
