The broader sector’s technicals suggest more pain ahead, says Johnson. Piper Jaffray has been underweight the group for just over two years.
The fundamentals case for consumer staples also looks ugly, according to Michael Binger, senior portfolio manager at Gradient Investments.
“This classic defensive sector has really been a land mine for investors lately,” Binger said on Friday’s “Trading Nation.” “The way they’ve been getting earnings growth is to acquire each other, cut costs, take on debt and buy back stock, so this type of financial engineering seems to have hit a wall lately.”
Components within the XLP are expected to post collective 12 percent earnings growth for 2018, according to FactSet. S&P 500 earnings are forecast to rise by 20 percent in 2018.
“Investors are really de-rating these stocks, they’re taking them from what’s been a premium to the market to a discount to the market,” Binger said. “So as long as we have companies like General Mills, Phillip Morris, [Molson Coors], Kraft Heinz, I think this is a sector to stay away from.”
The XLP is on track to end May in the red, its fourth straight month in decline.