Staples Not Acting Like Bond Proxies:
Consumer staples have been regarded for their strong dividend yields as market participants are not necessarily looking for capital appreciation from them. However, the chart below comparing the XLP to the 10-year yield shows just how far that correlation has become unwound. Is it stretched too far? I think one can look for mean reversion here and if the staples can gather some momentum here I think that would be a good sign that yields could potentially be topping, or that both can advance similarly to the June-July periods. The XLP is trying to put together its first back-to-back WEEKLY winning streaks since late July up just more than 1% heading into Friday. A good start would be if the XLP can break ABOVE the recent digestion on the ratio chart against the XLY, a traditional gauge of “risk on” in the consumer space. It has made two prior attempts to do so in mid-July and September but never gained traction. Will the third time be the charm?