Consumer Staples Hit Their Priciest Valuation Since 1998

Consumer staples are the companies that sell things people buy no matter what, including soap, soda, and groceries. Investors treat them as shelter when riskier parts of the market wobble. October turned that shelter into one of the most crowded corners of the stock market.

Soap and soda beat silicon

The MSCI global consumer staples index rose 10.6% in October, its strongest month since 1998. Global healthcare gained 9.8%, its second biggest monthly rise this century.

In the US, the Consumer Staples Select Sector SPDR FundXLP posted its best month since its December 1998 launch. The SPDR S&P 500 ETF TrustSPY finished roughly flat at a 0.1% decline, while the Technology Select Sector SPDR FundXLK lost 6.9%.

Over one month, the staples fund outpaced the S&P 500 by roughly 11 percentage points. Only April 2022 produced a gap that wide in the fund's 27-year history.

Paying a premium for slow growth

Staples now trade at roughly 23.8x forward earnings, their richest level since 1998 and up from below 21x a year ago, according to deVere Group. Large US tech trades near 23x expected 2026 profits.

The earnings behind that price tag haven't kept pace. Staples profits have grown under 5% a year over the past decade, and dividend yields sit among the thinnest since 2005, deVere says.

Where the buying concentrated

The rally was broad across the sector's biggest names. WalmartWMT gained 16.2% in October for its best month since December 1999, while Procter & GamblePG added 14.6%, its strongest since October 1998.

Colgate-PalmoliveCL rose 14%, CostcoCOST 11.5%, and Coca-ColaKO 10.6% over the same month.

Procter & Gamble's fiscal first quarter showed what investors are paying for. Core EPS rose 1% to $2.00 and net sales climbed 4% to $23.28B, with volumes up 2.4%.

The company expects about $1.4B in after-tax commodity cost headwinds this fiscal year. Its chief financial officer flagged materially higher pressure in the second quarter and second half on oil prices.

Bank of America's clients sold a record $14.8B of individual US stocks in the week through Oct. 16, with tech seeing the second biggest outflows ever, equity quant strategist Jill Carey Hall wrote. Staples were among the few sectors they bought.

What 1998 actually did next

The last time staples were this expensive, the timing was unkind. From late 1998 to early 2000, the sector fell nearly 40% from peak to valley and lagged the S&P 500 for nearly two years.

Seven earlier months saw staples run this far ahead of the S&P 500. In five of them, the S&P 500 was lower a year later, and five of the seven landed in 2000 and 2001.

One detail breaks the parallel. Across those earlier months, the index finished in the red by anywhere from 1.6% to 9.5%. This October, by contrast, it barely moved, ending about 2.5% below the intraday record set earlier in the month.

Nov. 9 offered a preview of the unwind. The S&P 500 rose 2.35% for its best day since April, tech climbed 3.73%, and staples managed 0.90%.

Reading the crowd

Bank of America's derivatives team calls the AI selloff a positioning-driven hiccup on the fringes of the trade rather than core weakness. Its strategists now place healthcare and staples among the highest readings on the bank's Bubble Risk Indicator.

Citi has cut US and global technology stocks from overweight to neutral, citing rising credit spreads and weaker earnings revisions. Polymarket traders put the odds of a US recession by the end of 2026 at 7.5%, and 35% by the end of 2027.

Thursday's session put the safety trade to its first real test, and it did not pass: the S&P 500 closed down 0.35%, the Nasdaq down 0.39%, and the staples fund down 0.43%, slightly more than the market it is meant to shelter investors from.