Understanding Food Stocks’ Recent Rally



Food retailers are having a great run

After a mostly stressful and challenging 2017, the last two months of the year seem to be a breath of fresh air for food retailers. Kroger (KR), Sprouts Farmers Market (SFM), and Supervalu (SVU) have surged 24%, 14%, and 11.5% over the last month (between November 7 and December 6), respectively. Retail giant Walmart (WMT) soared 10% while discount retailers Dollar General (DG) and Dollar Tree (DLTR) have risen 12.6% and 13%, respectively.

The Consumer Staples Select Sector SPDR Fund (XLP) and SPDR S&P Retail ETF (XRT) have risen 8.4% and 10.4%, respectively. The seven-company S&P 500 Food and Staples Retail Index is up 10.3% and has outperformed the S&P 500 Index (SPX) at +1.5% during the period.

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What’s behind the strong performance?

A better-than-expected start to the holiday season, strong earnings results, and expected tax cuts that will likely benefit the retail sector are some of the key reasons for the surge.

This good news comes as a relief for grocery stocks, which have struggled with deflationary headwinds and price wars in the first half of the year and uncertainty created by Amazon’s (AMZN) acquisition of Whole Foods Market in the second half.

A quick look at the US Food Retail Sector

The US food retail sector comprises store formats that range from small grocery shops and convenience stores to discount stores, supermarkets, and even drug stores. The supermarket segment is the most significant component of the industry. Walmart is the country’s largest food retailer while Kroger is the largest supermarket and the second-largest food retailer.

Read the next part of this series to learn about the major threats the grocery segment currently faces.


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