Sticking With Staples
American Consumer Staples stocks are up 15.4% in the last three months, while US tech stocks are down 1.7%.
Staples versus Tech
Low volatility stocks, which are often defensive by nature and high-quality (the market trusts them), are also outperforming. This group will contain numerous consumer staples giants. Arguably, the current rotation began on October 31, 2025.
Low Vol versus Tech
If you zoom out, the extent to which tech stocks race ahead to later crash lower, while the low volatility stocks just plug away, is remarkable. Low vol stocks held up well in 2022, and again during the tariff crash last April. They are now performing that role again, as AI disrupts the tech sector and its high valuations.
Slow and Steady
America is also underperforming, with the weaker dollar feeding alpha (outperformance) back to the rest of the world. The relative line (black), shows that the S&P started losing ground against the world index when the dollar peaked in January, 2025.
S&P 500 and the Dollar
Overall, while US indices may not be down hugely in local currency terms, for foreign investors, the difference is large. When looking under the surface, a notable rotation is underway. Defensive quality stocks, with low volatility, have been ignored for the last five, or perhaps fifteen, years. They have highly repeatable sales and profits, offer essential products and services, are hard for AI to disrupt, and have a long history of resilient performance during bear markets.
Given the rotation and their return to outperformance, we turn back to this area of the markets for our next addition to the ByteTree quality portfolio.
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