• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Consumer Staples

On the Leading Edge

The defensive consumer nondurables sector is the new nifty fifty.
By DOUG KASS
Apr 23, 2013 | 01:00 PM EDT
Stocks quotes in this article: WMT, AVP, DIS, MCD, XRX, PG, KO, CL, CLX, GIS, HNZ

This commentary originally appeared at 9:06 a.m. EDT on April 23 on Real Money Pro -- for access to all of legendary hedge fund manager Doug Kass's strategies and commentaries, click here.

"Never have so few led so many."

-- Anonymous

In the 1960s and 1970s, the stock market was inhabited by the "nifty fifty," a small subset of one-decision stocks that had strong balance sheets, solid franchises (typically leaders in their field), superior profit prospects and were generally credited with the bull market of that era. Some examples of the nifty fifty included Wal-Mart (WMT), Avon Products (AVP), Disney (DIS), McDonald's (MCD), Polaroid and Xerox (XRX). The stocks flourished for a while but ultimately became overvalued, reached speculative status and were weighed down by the bear market that continued until 1982.

It seems that in every market cycle there is a nifty fifty or a body of stocks that are embraced by investors. In time, the market predictably grows more and more bifurcated, with the worshipped (few) stocks standing alone at the top of relative performance.

When this happens and further extends itself into speculative excess, a correction often follows the diverging performance when the leadership group falters.

In recent months, the market has become increasingly bifurcated, perhaps as much as at any time since the Internet stock boom ended in 2000, as defensive equities (consumer nondurables, health care REITs, insurance, MLPs and utilities) are leading while cyclical, energy and technology have lagged.


Source: The Wall Street Journal

Since late February, the heterogeneity of the market has been conspicuous, with the strong sectors rising by 6% to 8% and the economically sensitive sectors dropping by a similar amount. This diverse performance, seen in the chart below, has disguised an internal market correction even though the overall stock market has maintained an uptrend.

Consumer Staples vs. Industrials
Source: Bloomberg
View Chart » View in New Window »

At the same time, the dissimilarity of market sector performance has been seen in weakening small-caps and a flat-lining of NYSE breadth over the past six weeks. In non-U.S. markets (particularly of an emerging market kind), weakness and has been broad.

The Fab Five

Let's return to the issue of leadership and its potential impact on the broader market.

Historically, in a correcting market, the strongest stocks react last while the underperforming sectors begin to stabilize and bottom.

Recently the "fab five" of Procter & Gamble (PG), Coca-Cola (KO), Colgate-Palmolive (CL), Clorox (CLX) and General Mills (GIS) have grown extended and have improved their relative strength -- there is, however, no evidence as of yet that a leadership change is apparent nor that a major market correction is in force.

It is increasingly clear that in the current market cycle the defensive consumer nondurables sector (led by the fab five) is the new nifty fifty and will likely move toward speculative excess sometime in the future.

Slowing global growth, lower commodities prices, continued deleveraging and possibly even Warren Buffett's imprimatur on the Heinz (HNZ) takeover are all possible contributing factors to the changing character of the 2013 U.S. stock market and the strength in defensive issues.

As in the early 1970s, when the big brand-name, moderately growing and dependable stocks were worth almost any price, the new fab five are approaching a similar legendary status.

It should be noted that the current cycle is unique in history (with the exception of the aforementioned 1971-1972 period), as strength in defensive stocks have typically coincided with general market declines.

We don't know how long the anointed fab five's strong relative performance will last. As I wrote earlier, much will depend on global growth trends and/or monetary policy changes.

What I am certain of is that it will be important to watch the fab five's relative share price performance in the period ahead, as these stocks are the new market tell.

Until their leadership begins to falter, the U.S. stock market is not likely to correct meaningfully -- at least based on the role of market leadership in the past.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Doug Kass was long PG and CL.

TAGS: Investing | U.S. Equity | Consumer Staples | Stocks

More from Consumer Staples

Any Bounce in This Nasty Bear Market Should Be Viewed With Caution

Bob Byrne
May 11, 2022 8:30 AM EDT

For now, any rebound is a short-term trading opportunity and nothing more.

3 Name-Brand Stocks That Traders Might Take a Stab at in This Rotten Market

Bob Byrne
May 9, 2022 8:30 AM EDT

Rather than try to catch falling knives, traders should give a look at Merck, IBM and Procter & Gamble.

Strange Options Moves on Staples ETF Sparks a Trade Idea

Mark Sebastian
May 4, 2022 2:25 PM EDT

Here's how I would play the XLP right now.

Ketchup? Check. Jelly? Check. Beer? Of Course. Let's Go Get Some Staples

Ed Ponsi
Apr 28, 2022 10:30 AM EDT

Names like J.M. Smucker and Kraft-Heinz may seem dull, but they provided needed stability in this kind of market. Let me show you why it's time to get back to the basics.

Shares of Whirlpool Are Spinning Round and Round

Bruce Kamich
Apr 26, 2022 8:44 AM EDT

Let's check the charts and indicators.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:14 PM EDT PAUL PRICE

    A new, very scary movie

  • 08:51 AM EDT PAUL PRICE

    Advice from the future...

  • 12:20 PM EDT PAUL PRICE

    A blast from the past regarding Bitcoin

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login