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May 19, 2022, 5:29 p.m. EDT

Retail stock woes hit consumer sector ETFs as S&P 500 nears bear market territory

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By Christine Idzelis

Hello! It’s been a brutal week for consumer-sector stocks while the S&P 500 index is edging closer to bear market territory. 

“My indicators suggest that the bear-market move can keep its hold through the summer months,” says Katie Stockton, founder and managing partner of Fairlead Strategies, in this week’s ETF Wrap. She also says her recently launched Fairlead Tactical Sector ETF may help “protect downside in this type of environment.”

Please send feedback and tips to christine.idzelis@marketwatch.com. You can also follow me on Twitter at @cidzelis and find me on LinkedIn

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In a brutal week for retail stocks, the defensive consumer-staples sector was not spared.

The Consumer Staples Select Sector SPDR Fund /zigman2/quotes/200697959/composite XLP -0.64% fell 6.4% Wednesday, while the Consumer Discretionary Select Sector SPDR Fund /zigman2/quotes/200844504/composite XLY +2.24% dropped 6.5%, according to FactSet data.

The carnage came within a broader stock-market slump, with the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.16% falling 4% Wednesday, for its biggest daily drop since June 2020. The S&P 500’s consumer-staples and consumer-discretionary sectors on Wednesday booked their biggest percentage drop since March 2020, according to Dow Jones Market Data. 

“We’re in a bear-market move,” with sharp relief rallies presenting “better selling opportunities until you get a long-term bottom,” said Katie Stockton, founder and managing partner of Fairlead Strategies, in a phone interview. “My indicators suggest that the bear-market move can keep its hold through the summer months.”

Stockton is the portfolio manager for the recently launched Fairlead Tactical Sector ETF /zigman2/quotes/234179097/composite TACK -1.21% , an active U.S. equity fund that uses a systematic strategy and is rebalanced monthly. The fund, which began trading March 23, is so far faring better than the S&P 500 index.

Shares of the Fairlead Tactical Sector ETF are down 1.8% this month through Wednesday, after falling 3.3% in April, FactSet data show. That compares with the S&P 500’s 8.8% drop last month and a decline of 5% in May through Wednesday. 

“Over the course of the fund’s life, it’s gotten increasingly risk off,” said Stockton, partly through a more defensive sector positioning that includes exposure to consumer staples. She said the ETF can help “protect downside in this type of environment” where stocks are selling off.

The S&P 500 was trading down Thursday afternoon, nearing bear market territory, which it would enter with a close of about 3,837, according to Dow Jones Market data.

The Fairlead Tactical Sector ETF, which invests in SPDR ETFs, has shifted to a 50% position in short-term Treasuries /zigman2/quotes/207475852/composite SPTS +0.03% , long-term Treasuries /zigman2/quotes/209443811/composite SPTL +0.63% and gold /zigman2/quotes/200593176/composite GLD -2.12% , Stockton said, while the fund’s sectors exposures are “fairly defensive,” including consumer staples /zigman2/quotes/200697959/composite XLP -0.64% , utilities /zigman2/quotes/206645117/composite XLU -3.41% , real estate /zigman2/quotes/207325179/composite XLRE -0.41% and energy /zigman2/quotes/206420077/composite XLE -3.97% .

Consumer staples is considered a defensive sector but it has taken a beating this week, as earning misses reported by Target Corp. /zigman2/quotes/207799045/composite TGT +2.34% and Walmart Inc. /zigman2/quotes/207374728/composite WMT +1.32% have increased investors’ recession fears amid concern that high inflation may be squeezing Americans’ spending.

Read: Target stock plunges as profit drops on consumer spending shifts and jump in freight costs

The Vanguard Consumer Staples ETF /zigman2/quotes/204569793/composite VDC -0.46% , Invesco S&P 500 Equal Weight Consumer Staples ETF /zigman2/quotes/207579253/composite RHS -0.60% and Fidelity Covington Trust MSCI Consumer Staples Index ETF /zigman2/quotes/209917699/composite FSTA -0.34% all fell more than 6% Wednesday, according to FactSet data.

Walmart, a retail giant in the S&P 500 index’s consumer-staples sector, is down around 19% this week, based on Thursday afternoon trading levels, FactSet data show, at last check. And Target, a department-store chain in the S&P 500’s battered consumer discretionary sector, has this week tanked around 30%, based on Thursday afternoon trading. 

Read: If you thought Walmart and Target had disappointing earnings, these retailers did so much worse

So far this year, the Consumer Discretionary Select Sector SPDR Fund has plunged 30% through Wednesday, far exceeding the nearly 7% decline for the Consumer Staples Select Sector SPDR Fund over the same period, FactSet data show.

/zigman2/quotes/200697959/composite
US : U.S.: NYSE Arca
$ 72.75
-0.47 -0.64%
Volume: 12.83M
July 5, 2022 4:00p
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/zigman2/quotes/200844504/composite
US : U.S.: NYSE Arca
$ 143.14
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Volume: 5.76M
July 5, 2022 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,831.39
+6.06 +0.16%
Volume: 2.51B
July 5, 2022 5:04p
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/zigman2/quotes/234179097/composite
US : U.S.: NYSE Arca
$ 23.59
-0.29 -1.21%
Volume: 41,638
July 5, 2022 4:00p
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/zigman2/quotes/207475852/composite
US : U.S.: NYSE Arca
$ 29.51
+0.01 +0.03%
Volume: 2.64M
July 5, 2022 4:10p
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/zigman2/quotes/209443811/composite
US : U.S.: NYSE Arca
$ 33.58
+0.21 +0.63%
Volume: 3.84M
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/zigman2/quotes/200593176/composite
US : U.S.: NYSE Arca
$ 164.75
-3.57 -2.12%
Volume: 14.04M
July 5, 2022 4:00p
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/zigman2/quotes/200697959/composite
US : U.S.: NYSE Arca
$ 72.75
-0.47 -0.64%
Volume: 12.83M
July 5, 2022 4:00p
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/zigman2/quotes/206645117/composite
US : U.S.: NYSE Arca
$ 69.40
-2.45 -3.41%
Volume: 22.03M
July 5, 2022 4:00p
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/zigman2/quotes/207325179/composite
US : U.S.: NYSE Arca
$ 41.42
-0.17 -0.41%
Volume: 4.56M
July 5, 2022 4:00p
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/zigman2/quotes/206420077/composite
US : U.S.: NYSE Arca
$ 69.70
-2.88 -3.97%
Volume: 44.93M
July 5, 2022 4:00p
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/zigman2/quotes/207799045/composite
US : U.S.: NYSE
$ 145.71
+3.33 +2.34%
Volume: 3.72M
July 5, 2022 4:03p
P/E Ratio
12.08
Dividend Yield
2.96%
Market Cap
$66.02 billion
Rev. per Employee
$237,729
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/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 124.25
+1.62 +1.32%
Volume: 6.07M
July 5, 2022 4:00p
P/E Ratio
26.70
Dividend Yield
1.80%
Market Cap
$336.15 billion
Rev. per Employee
$250,440
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/zigman2/quotes/204569793/composite
US : U.S.: NYSE Arca
$ 187.09
-0.87 -0.46%
Volume: 125,730
July 5, 2022 4:00p
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/zigman2/quotes/207579253/composite
US : U.S.: NYSE Arca
$ 166.83
-1.00 -0.60%
Volume: 134,811
July 5, 2022 4:00p
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/zigman2/quotes/209917699/composite
US : U.S.: NYSE Arca
$ 43.71
-0.15 -0.34%
Volume: 207,811
July 5, 2022 4:10p
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