The Consumer Staples sector has been going steady this year after declining for two years in a row. As of Jul 3, the S&P 500 Consumer Staples Select Sector SPDR (XLP) was up 7.7%. While the sector has not matched up to market expectations that consumer spending would go up by leaps and bounds, it has held fort if compared to consumer discretionary stocks.

Stock trading in 2024 has been widely impacted by apprehensions about the Fed not bringing down rates as promised. While tech and mega-cap growth stocks have done well despite this gloom, investors also seem to have shown increased interest in defensive stocks. The defensive nature of these stocks ensures that market volatility does not have a lasting impact on the sector.

Consumer staples may not have the highest earnings growth or year-over-year revenue growth but the sector has experienced relatively little disruption historically. These stocks make up for modest growth with low price volatility, reliable profits, dividends and defensive positioning.

However, the most significant factor going in favor of the sector is that over the last couple of months, inflation has shown a steady rate of slowdown, even if it has still not come down to the Fed’s target rate of 2%. With consumer and producer side inflations both slowing down, consumer sentiment and spending are bound to go up.

PCE Inflation, which is often considered to be the Fed’s favorite inflation indicator, returned encouraging numbers for May after falling in April. PCE and core PCE inflation in the United States are showing signs of slowing down and indicate a likely rate cut by the Fed in September. The U.S. headline PCE inflation rate slowed to 2.6%. Core PCE advanced 0.1%. This implies more purchasing power in the hands of consumers.

Our Picks

We have selected three consumer staples stocks. These stocks have a Zacks Rank #1 (Strong Buy) or #2 (Buy). The search was also narrowed down to stocks with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics and allows one to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here

Chewy, Inc. (CHWY Quick QuoteCHWY - Free Report) is a pure-play e-commerce company.

Chewy’s expected earnings growth rate for the current year is 39.1%. The Zacks Consensus Estimate for its current-year earnings has improved 15.7% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of B.

Edgewell Personal Care Company (EPC Quick QuoteEPC - Free Report) is a global manufacturer and marketer of personal care products.

Edgewell Personal Care’s expected earnings growth rate for the current year is 14.1%. The Zacks Consensus Estimate for its current-year earnings has improved 4.3% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of B.

Arko Corp. (ARKO Quick QuoteARKO - Free Report) is a U.S.-based operator of convenience stores.

Arko’s expected earnings growth rate for the current year is 125%. The Zacks Consensus Estimate for its current-year earnings has improved 500% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A.