Consumer staples stocks are defying broader market weakness, benefiting from economic uncertainty and trade concerns.
The Vanguard Consumer Staples ETF, which includes household names like Coca-Cola, Procter & Gamble, and Walmart, has gained over 5% this year.
In contrast, the Consumer Discretionary Select Sector SPDR ETF—comprising companies like Amazon, Tesla, and Starbucks—has fallen nearly 7% in 2025.
Investors have favoured staples as they sell essential products that remain in demand even during economic slowdowns.
However, even with various experts talking about higher odds that the US may be entering a recession phase, analysts are advising against further stocking up on staples.
Why are staples currently in demand?
A major driver behind the demand for consumer staple stocks is President Donald Trump’s tariffs on imports from China, Mexico, and Canada.
These levies are expected to push up prices, fuelling inflation and squeezing household budgets.
The prospect of higher costs has hurt discretionary and tech stocks, as consumers may cut back on non-essential purchases.
Staples stocks, however, are seen as better positioned to weather these pressures.
These companies have pricing power, allowing them to pass higher import costs onto consumers without significantly denting demand.
As a result, investors seeking a safe haven amid economic uncertainty have turned to the sector.
Staples rally may near its peak despite recession
The key questions for investors now are how much tariffs will drive inflation, how long the Federal Reserve will keep interest rates elevated, and whether these pressures could tip the economy into a recession.
“If you think a recession is inevitable, then staples are a safety trade,” analysts at DataTrek wrote in a recent note.
“If you think the US economy can avoid recession, as we do, then tech is the better group over the next year, as history shows stocks that leverage disruptive innovation tend to outperform over the longer run.”
However, even if the economy slows, some analysts argue that the staples rally is nearing its peak.
S&P 500 staples have outperformed the tech sector by nearly nine percentage points over the past year.
Historically, when staples outperform tech by such margins, the following year has seen tech regain leadership, with the broader market delivering stronger gains.
Valuations approach upper limits of their historic range
Valuation metrics also suggest staples may struggle to extend their gains.
The Vanguard Consumer Staples ETF trades at 21.6 times forward earnings, above the S&P 500’s multiple of 20.8, according to FactSet.
While staples sometimes command a slight premium due to their defensive nature, current valuations are approaching the upper end of their historical range.
At the same time, the sector’s multiple is now nearly in line with the consumer discretionary ETF’s 23.3 times earnings.
Staples have historically traded at a discount to discretionary stocks, but that gap has narrowed significantly, raising concerns about limited upside from current levels.
Tech may reclaim leadership
Unlike staples, technology stocks have historically demonstrated stronger earnings growth, fuelled by innovation and market share expansion.
Staples rely on incremental price increases to drive revenue, whereas tech companies often disrupt industries and generate rapid earnings growth, leading to sustained stock price appreciation.
With discretionary and tech stocks trading at more attractive valuations, investors may soon rotate away from staples.
If economic growth holds steady, tech and discretionary earnings should continue to rise, positioning those sectors for stronger performance ahead.
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