Stock prices are rising for consumer staples amid tech uncertainty

Whether you’re feeling cheery or gloomy about the economy, there’s some stuff you just have to buy. Toothpaste, food, laundry detergent — those are consumer staples, and that sector of the stock market is doing quite well right now.

It’s up 5% this week. The money is flowing in, even as it’s flowing out of tech stocks, where there are mounting concerns about the potential bubble of AI-related trades. 

Alphabet, Amazon, Microsoft, and Meta just said they’re spending $600 billion on AI infrastructure this year. Parul Jain, professor of economics and finance at Rutgers University, said investors are wondering how that’s going to affect profits. 

“There were some over-optimistic expectations for the AI sector,” Jain said. “So there has been a little bit of a market rout. It’s basically the runup and then the rundown that we’re looking at.”

It’s not only tech companies’ spending that’s worrying investors. There are new concerns about whether AI could replace entire parts of the tech economy, like the need to buy new software.

Andrew Rocco, a stock strategist at Zacks Investment Research, said that’s all leading to uncertainty.

“Now the question is that, where is the money going to go?” Rocco said. “Consumer staples, they offer stability.”

Rocco said companies like Procter & Gamble, Walmart, or PepsiCo are going to have more stable growth as a result.

“They’re not going to have higher growth, but they’re going to have more predictable growth,” he said.

Those companies are reliable, not flashy, he said — the Toyota vehicles of the investment world.

Erin Lash, director of consumer equity research at Morningstar, said those stocks have been relatively cheap.

“This recent uptick that we have seen over the past few days has been coming off of, for a number of these names, some more depressed trading levels,” she said.

As investors opted for the Ferraris of the stock market, the future may be looking brighter for consumer staples.

For one, analysts said last year’s tax cuts could show up as larger returns this year, which TD Cowen managing director Robert Moskow said can boost consumer spending.

“When consumers go to the grocery store and they’re filling up their grocery cart, it might make them feel a little more comfortable adding an extra item or paying a premium for a premium brand,” he said.

That makes stocks tied to consumer staples even more attractive right now to spooked investors.