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Consumer stocks are taking their turn in the spotlight

Investors are rediscovering the charm of boring stocks.

Anxiety over the Federal Reserve’s plans to tame inflation by raising interest rates has hit the stock market, sending the S&P 500 down 13% this year and 8.8% in April alone. Technology stocks have been exposed to particularly intense pressure, leaving the Nasdaq Composite up 21% for the year and 13% for the month.

Instead, it seems that investors are turning their attention to companies that offer everyday necessities – a preference that has been reinforced as many such companies have strong quarterly results. The consumer group was the only S&P 500 sector in green for April with a gain of 2.4%.

Nearly 90% of the staple companies that have reported this season have, according to FactSet, logged profits over analysts’ estimates. Across industries in the index as a whole, this figure is 80%.

Coca Cola Co.

COW -2.39%

Hershey Co.

HSY -0.97%

Kraft Heinz Co.

VARIOUS -2.25%

Procter & Gamble Co.

PG -1.75%

and Kimberly-Clark Corp. KMB -2.23%

all reported stronger-than-expected earnings and saw their shares rise by at least 4% in April.

“The boring, fast-growing, high-quality companies are doing well,” said Louise Goudy Willmering, partner at Crewe Advisors’ asset management firm. “The kind of thing that was not so appealing and sexy in the technical bonanza of the pandemic has kept growing.”

Investors this week will scrutinize earnings reports from companies including Molson Coors Beverage Co.,

TAP.A -1.29%

Pfizer Inc.

Starbucks Corp.

and eBay Inc.

They will also see the Federal Reserve meeting where central bank officials are expected to raise their benchmark rate by half a percentage point, and the monthly job report for tracks on the strength of the labor market.

One of the best-performing stocks in the S&P 500 last week was paint manufacturer Sherwin-Williams Co..

, whose shares rose 9.4% in a single session after the company beat earnings expectations. Also on the ranking list was the sanitation company Waste Management Inc.

whose shares also rose after a positive earnings surprise.

With US inflation at a high level for four decades, investors are keeping a close eye on how companies keep their costs down or pass on increases to customers through higher prices. Reports from some consumer goods companies suggest that households have not yet leaned back to higher prices for basic goods.

Hershey raised its outlook for the year as demand for its sweets and snacks held up despite higher prices. Coca-Cola reported higher sales as strong demand and price increases offset rising input costs.

“When it comes to everyday necessities, consumers are mostly price insensitive,” said Tom Galvin, chief investment officer at City National Rochdale’s asset management firm. “They have job gains, they have wage gains, they have cash on hand, and they are willing to pay more money to enjoy life … If I have to pay a penny more for a can of my favorite drink, it’s like, no something special.”

Starbucks is among the major U.S. companies expected to report earnings this week.


Photo:

Gabby Jones for The Wall Street Journal

Rising prices are not the only problem for growth stocks, as many tech companies are assessed on future growth. Large technology companies delivered a mixed bag of earnings reports last week, which helped cause the major stock indices to fluctuate sharply.

While shares in Meta Platforms Inc.

rose 18% on Thursday after Facebook’s parent company added more users than expected, Amazon.com Inc.

the shares fell 14% the day after the company had its first quarterly deficit in seven years.

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Such stocks exert a large influence on indices such as the S&P 500, which are weighted by market value. The popular FAANG shares — Meta Platforms, Amazon, Apple Inc.

Netflix Inc.

and Google’s parent company Alphabet Inc.

– with Microsoft Corp.

accounts for more than 21% of the S&P 500, but accounts for nearly 37% of the index’s 2022 decline on a total return, according to the S&P Dow Jones Indices.

The haste in defensive stocks has been so strong that base stocks are starting to look expensive. The S&P 500 traded in five sessions through the middle of last week at a higher forward price / earnings multiple than the technology segment, the first time since April 2020, according to FactSet. Both groups traded late last week to about 22 times their expected earnings over the next 12 months.

Tech stocks, on the other hand, have fallen so far that some investors say there are deals to be found. Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said he has bought growth stocks, including stocks in large technology companies.

“These big technology stocks, with a few exceptions, are very declining,” he said. “I just do not think their valuations are at a level that should be avoided any longer.”

Write to Karen Langley at karen.langley@wsj.com

This is how the biggest companies do

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