Consumer staples stocks are outperforming the broader market, attracting investors seeking stability amid economic uncertainty and global trade concerns. The Vanguard Consumer Staples ETF (VDC), which includes industry giants like Coca-Cola, Procter & Gamble, and Walmart, has climbed over 5% this year. In contrast, the Consumer Discretionary Select Sector SPDR ETF (XLY), home to stocks like Amazon, Tesla, and Starbucks, has tumbled nearly 7% in 2025.
Why Are Consumer Staples in Demand?
The surge in staples stocks can be attributed to heightened trade tensions and economic concerns under President Donald Trump’s administration. New tariffs on imports from China, Mexico, and Canada are expected to drive inflation higher, pressuring household budgets and reducing discretionary spending.
While rising costs have weighed on tech and consumer discretionary stocks, consumer staples have remained resilient. These companies sell essential goods that remain in demand regardless of economic cycles. Additionally, staples companies have strong pricing power, allowing them to pass on increased costs to consumers with minimal impact on demand. As a result, investors seeking a safe-haven play have rotated into the sector.
Is the Consumer Staples Rally Peaking?
Despite concerns about a potential recession, analysts are cautioning against further aggressive buying of consumer staples stocks. The key questions now are how much tariffs will fuel inflation, how long the Federal Reserve will keep interest rates elevated, and whether these pressures could tip the U.S. economy into a recession.
“If you think a recession is inevitable, then staples are a safety trade,” analysts at DataTrek noted in a recent report. “If you believe the U.S. economy can avoid recession, 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.”
Historical data suggests that when consumer staples outperform tech stocks by a significant margin, the following year often sees tech regain leadership. Over the past year, the S&P 500 consumer staples sector has outperformed the tech sector by nearly nine percentage points, raising concerns that the rally may be near its peak.
Valuation Concerns for Staples Stocks
Valuation metrics also indicate that consumer staples stocks may struggle to maintain their upward momentum. According to FactSet, the Vanguard Consumer Staples ETF trades at 21.6 times forward earnings, surpassing the S&P 500’s 20.8 multiple. While staples stocks often trade at a premium due to their defensive nature, they are now approaching the upper limits of their historical valuation range.
Additionally, the valuation gap between staples and discretionary stocks has narrowed significantly. The consumer discretionary ETF now trades at 23.3 times forward earnings, just slightly higher than the staples ETF. Historically, staples have traded at a notable discount to discretionary stocks, but that discount has almost disappeared, limiting the sector’s upside potential.
Tech Stocks Poised for a Comeback?
Unlike consumer staples, technology stocks have historically demonstrated stronger earnings growth, driven by innovation and industry disruption. While staples stocks primarily rely on incremental price increases, tech companies often capture market share and drive rapid earnings growth, leading to long-term stock price appreciation.
With consumer discretionary and tech stocks now trading at more attractive valuations, investors may begin rotating out of staples in favor of sectors with higher growth potential. If economic growth remains stable, tech and discretionary stocks are well-positioned to regain leadership in the market.
