Over the past 18 months, the stock market has been buzzing about the rise of artificial intelligence (AI) stocks.  While these AI companies have driven much of the market’s upward momentum, there’s another less flashy but equally interesting story unfolding among consumer staples companies in 2024.  

These are companies that produce everyday goods like food, beverages, and household items.  Despite the market’s focus on AI, consumer staples have shown impressive performance, providing a safe haven for investors seeking stability.

Consumer staples are companies that make products we use daily.  Think of brands like Walmart, Costco, Colgate, and Procter & Gamble.  This year, these companies have seen remarkable performance in their share prices.  Unlike the tech giants riding the AI wave, these consumer staples are not typically associated with rapid innovation or high growth.  Instead, they are known for their steady, reliable performance.

What makes this noteworthy is that these companies have outperformed the broader market, especially when you exclude the AI stocks.  For instance, while the S&P 500 has risen about +16% this year, many consumer staples have posted significant gains, many of them higher than the index.  This is surprising because some of these companies haven’t even kept up with inflation in terms of revenue growth.  Yet, investors are flocking to them. Why?

One major reason is safety.  Consumer staples are considered non-cyclical, meaning their performance is less tied to economic cycles.  People need groceries, toothpaste, and cleaning supplies regardless of the economic situation.  This makes these stocks attractive, especially when there’s uncertainty about the future.

For example, companies like Walmart and Costco started the year with high valuations compared to the overall market.  Despite this, investors continued to buy their stock, seeking refuge from the volatility seen in other sectors.

AI has been a hot topic this year.  Technologies like large language models (think advanced chatbots and automated systems) are expected to revolutionise many industries.  The market is betting that the big winners in this AI revolution will be familiar tech giants like Apple, Alphabet (Google’s parent company), Amazon, Meta (formerly Facebook), and Microsoft.  Nvidia, known for its graphics processing units (GPUs), is also a key player.

For retail investors, while the excitement around AI has delivered strong price performance in tech names, this can be balanced with the stability offered by other sectors, like consumer staples.  While it’s tempting to chase the latest tech trends, having a portion of your portfolio in steady, reliable stocks can provide a buffer against market volatility.

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