Consumer staples after a smokestack cycle

Two industry groups, two jobs

Smokestack stocks are industrial cyclicals in heavy industry, basic materials, manufacturing, and processing. They were framed as groups that tend to outperform when the economy is running at full capacity.

Consumer staples are companies whose goods and services keep relatively steady demand across the business cycle. The historical write-up defined them as names with relatively constant demand for everyday goods and services, spanning tobacco, medical products, cosmetics, food and beverages, healthcare, and pharmaceuticals.

After the smokestack advance

By late spring 2006, two previously highlighted industrial names had already advanced sharply from their November 2005 levels. Air Products and Chemicals had risen from 58 to more than 69, and US Steel had risen from 39 to almost 70.

A weekly consumer-goods sector fund was described as consolidating since early 2005. The pattern had horizontal resistance and higher lows, which resembled an ascending triangle.

Around mid-April 2006, food and beverage names were observed making aggressive upside moves. Those moves were described as either ending pullbacks in bullish trends or showing signs of reversing larger corrections.

The historical write-up argued that after basic materials and energy had already outperformed, consumer staples would tend to emerge once inflationary pressures became clearly visible across the economy.

A cycle-location reading

Consumer-staples performance was presented as a cycle-location indicator for what equities and the broader economy might reasonably do next. It was not presented as proof that a new leadership phase had already begun.

Early-contraction conditions were listed as sharply falling consumer expectations, declining industrial production, inflation rising less strongly, peaking interest rates, and a flattened or inverted yield curve.