The chart below plots prices of XLP versus the S&P500 Stock Index. It shows three distinct periods.
- 1999 - 2002: XLP moved in the opposite direction during the boom but together during the crash.
- 2003 - 2009: XLP trailed the index during the boom but dropped less during the crash.
- 2009 - 2014: XLP moved with the index.
During recessions consumer sentiment falls significantly and low levels of consumer sentiment is a boom for consumer staples companies. I illustrate this in the chart below with XLP versus the University of Michigan's Index of Consumer Sentiment. Another interesting point is that the Index of Consumer Sentiment is more volatile than XLP's prices. I'm not sure if there is a connection.
This weekend I will officially introduce my Consumer Staples Industry Investment Model to the world. The model will provide estimates of the Consumer Staples Select Sector SPDR ETF's (XLP) prices giving investors an idea of whether the ETF is under or overvalued. Model results will be posted weekly on my website. Below is a taste of its accuracy. Backtesting results are available in a previous blog entry on my website's journal section.