Investors are increasing exposure to other sectors
The NYSEFANG+ Index, which tracks high-growth, large tech stocks including the likes of Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet-owned Google (GOOGL), has tanked about 15% in the past one month as growing fear of increased government scrutiny is taking a toll on them.
Facebook, Amazon, Netflix, and Google dropped 13%, 10%, 6%, and 12%, respectively, in one month. Meanwhile, Apple (AAPL) stock is down about 11% during the same period. The sell-off followed the Wall Street Journal’s report that The Justice Department is considering an antitrust investigation on Google. The increased regulatory scrutiny is likely to hurt the stock prices of these tech giants, and the underperformance might continue for some time.
As markets haven’t been friendly to these tech stocks, investors are betting on safer options like the consumer sector. Also, the recent buying in the utilities, beverages, and restaurant stocks indicates that investors are shifting focus to other sectors.
Consumer sector shines
The defensive nature of the consumer sector, low valuations, acceleration in sales growth rate, price restructuring initiatives, and an expected improvement in the base business have supported the uptrend in the majority of stocks. Conagra Brands (CAG), Mondelēz International (MDLZ), J.M. Smucker (SJM), Campbell Soup (CPB), Hershey (HSY), and General Mills (GIS) have recorded substantial gains so far this year and have outperformed the broader markets.
Conagra Brands, Mondelēz International, General Mills, J.M. Smucker, Campbell Soup, and Hershey stock are up 38.8%, 33.5%, 31.8%, 30.9%, 30.4%, and 28.0%, respectively, on a YTD basis.
Meanwhile, robust organic sales growth and improved growth prospects have driven the stock prices of soda and beverages companies, including PepsiCo (PEP) and Coca-Cola (KO). Moreover, the lifting of import taxes on steel and aluminum from Canada and Mexico are likely to ease cost pressure and push innovation. PepsiCo and Coca-Cola are up 19.5% and 8.6% on a YTD basis as of June 7. Notably, these stocks have gained about 4% and 6%, respectively, in the past month.
Consumer cyclical stocks including Starbucks (SBUX), McDonald’s (MCD), and YUM! Brands (YUM) have also outperformed the broader markets and are up 26.4%, 14.3%, and 18.0%, respectively, on a YTD basis. Digital initiatives, innovation, and expansion of delivery mechanisms have driven the stock prices of these companies.
Utilities gaining steam
The recent buying in the utilities sector indicates investors’ growing exposure. Southern Company (SO), Xcel Energy (XEL), and NextEra Energy (NEE) in the utilities sector are up 26.1%, 21.4%, and 18.4%, respectively, so far this year. These stocks have risen 4%, 6%, and 8%, respectively, in one month.