By SIMON CONSTABLE
Stock strategists often talk about two groups of companies that sell
goods to individuals: makers of "consumer staples" and makers of
They sound similar but are in fact completely different in ways that matter to investors.
Consumer staples are the goods you buy for immediate, everyday
use—like shampoo, toothpaste and soap.
Most people, no matter how
pinched things get, will still buy these things. And they typically do
so with cash, says Aneta Markowska, chief U.S. economist at Société
Générale SA in New York.
Consumer durables, on the other hand, are big-ticket items that tend
to last many years—things like washing machines, refrigerators and
automobiles. "They tend to be financed with credit," Ms. Markowska says.
So when interest rates are high, sales of durables tend to drop.
Individuals also may delay these kinds of purchases in tough economic times.
If you think the U.S. is headed into a recession but you still want
to own stocks, then you might want to consider consumer-staples stocks.
They tend to hold up fairly well in challenging environments.
One option for fund investors: the Consumer Staples Select Sector SPDR
exchange-traded fund, which holds stocks such as Procter & Gamble Co., Coca-Cola Co. and Wal-Mart Stores Inc.
out of a recession, when interest rates are typically lower,
durable-goods stocks tend to outperform, Ms. Markowska says. Look to car
makers such as Ford Motor Co. and appliance makers such as General
Electric Co. and Whirlpool Corp. as prudent places to invest.
See original post here.