Do people spend more money to try and escape daily worries during bad times, or do they batten down the hatches and try to ride out the storm?

One interesting way to try and answer that question is to look at stocks pegged to consumer spending to see if there’s any sort of identifiable pattern.

But looking on an individual company or stock level can be problematic, as you can have a bad company not generating profit in a great market and visa versa.

Instead, it’s best to look at a basket of stocks and see if there’s any sort of pattern.

One way we can try and do that is comparing stocks listed as consumer staples, against those labelled as consumer discretionary — which is what S&P has been doing in Australia since 2002.

It’s sorted all ASX200 companies into various groupings known as Global Industry Classification Standards, or GICS.

It offers an opportunity to look at one particular sector as a whole by grouping listed companies together.

Among GICS groupings such as energy and financials, you’ll find two which sum up behaviour during lean periods:

 

  • Consumer Discretionary (ASX:XDJ)
  • Consumer Staples (ASX:XSJ)

 

While the former contains companies such as JB Hi-Fi (ASX:JBH) and Dominos Pizza (ASX:DMP) the latter contains companies such as A2 Milk (ASX:A2M) and Tassal Group (ASX:TGR).

The message here is that people generally load up on TVs and pizza when the economy is going okay, and they pull back when the market is not doing great.

While it’s not a perfect measure by any stretch of the imagination, it’s still an interesting exercise to see whether people pull back on discretionary spending during tough times — or spend to try and forget about their worries.

Just a word of warning here — we’re working with historical data and past performance does not indicate future performance, and content on Star Investing doesn’t constitute financial advice.

Times of famine

The first thing we need to do is pick a few years where the market wasn’t doing so great, so we can get a baseline to compare against.

So, we’ve picked 2008 (-41.29 percent), 2011 (-14.51 percent) and last year (-6.9 percent).

Now, let’s see whether discretionary staples were able to rise out the storm better than its discretionary counterpart:

2008 2011 2018
ASX200 -49.29 -14.51 -6.9
ASX:XSJ -21.11 -6.49 +4.25
ASX:XDJ -54.12 -18.86 -6.63

So, it would seem that in times of famine the ASX200 losses are minimised when investing in consumer staples — after all, stomachs tend not to look at the market too closely.

In fact, in 2018 it managed to buck the trend of the broader market and show a gain for the year!

Meanwhile, it would seem stocks pegged to discretionary spending felt the pinch and showed losses beyond what the market felt?

But what about times of feast? Does the trend completely reverse? Let’s find out!

Times of feast

As with our times of famine, we’ve picked out three years where the ASX200 has had a great year.

Those years are 2009 (+30.85 percent), 2012 (+14.6 percent) and 2013 (+15.13 percent).

Let’s see whether punters, feeling good about the market and life in general, load up on pizza and DVDs.

2009 2012 2013
ASX200 +30.85 +14.6 +15.13
ASX:XSJ +16.27 +25 +5.09
ASX:XDJ +42.74 +24.4 +19.83

With the exception of 2012, the conventional wisdom would seem to hold true.

In times of famine, people don’t stop buying the staples — but they do stop buying discretionary items.

So, if you think the market is in for a tough time, you may want to stock up on the essentials.

 

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.