Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Consumer Defensives Are Quietly Beating Tech in June 2026
Transcript
- Lucas: So the S&P 500 is at 7,420, the NASDAQ is at 26,022 — both up over the past five days, but not by much. The big story right now is what's happening underneath those index-level numbers. Luna: You mean the rotation out of Big Tech and into... what exactly? Lucas: Consumer defensives. Utilities, household goods, healthcare. The stuff people buy regardless of whether the economy is booming or slowing. And it's not just a one-week blip — this has been building since the Fed held rates steady earlier this week. Luna: Chairman Warsh really changed the tone of that statement. Removed the cutting bias, kept rates unchanged, several members signaled a hike later this year. That spooked the growth trade. Lucas: Yeah, and when the market reprices rate expectations, the first sector to get sold is often high-multiple tech. Meanwhile, defensives — which already had compressed valuations — become a relative safe haven. But I want to be specific about what's working. Luna: Alright, give me names. Lucas: Procter & Gamble, ticker symbol P-G. Johnson & Johnson, J-N-J. Both are up about 4 to 5 percent over the past month, while the NASDAQ is basically flat. Their earnings per share growth isn't explosive — we're talking 3 to 5 percent year-over-year — but that consistency is suddenly very attractive. Luna: So it's not about growth acceleration, it's about stability in an uncertain rate environment. Lucas: Exactly. And here's the key number: the price to earnings ratio on the S&P 500 Consumer Staples sector is around 21 times forward earnings. That's actually below its five-year average of 23. So you're paying a slight discount for companies that have historically grown earnings through recessions. Luna: Meanwhile, the tech sector's P/E is still north of 30. So the rotation has room to run. Lucas: I think so. Look, if today's conversation helped you think about your portfolio differently — maybe you're considering whether to trim some tech and add a consumer staple or two — honestly, if it was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. It keeps us ad-free and independent. Luna: Yeah, listener support really is what lets us dig into these specific numbers instead of just giving general advice. So thank you to anyone who chips in. Lucas: Alright, back to the data. I want to pull up the Vanguard Value ETF, ticker i w d. It's up 0.6 percent over the past five days. That's not huge, but compare it to the Vanguard Growth ETF — which is down slightly over the same period. The gap is small, but the direction is clear. Luna: And the Russell 2000, the small-cap index, is actually down 0.1 percent over five days. So this isn't a broad 'everything except tech is rallying' story. Lucas: No, it's very sector-specific. Utilities are up about 2 percent in the past week. The Select Sector SPDR for Utilities, ticker X-L-U, is at a 52-week high. That's notable because utilities are interest-rate sensitive — they carry a lot of debt. But when rates stop rising, those dividend yields start looking more attractive. Luna: So the Fed holding steady — even with a hawkish tilt — was enough to give utilities a green light. Lucas: Right. And healthcare is interesting too. Johnson & Johnson is up 3 percent in the last month. Pfizer, on the other hand, is down about 1 percent over five days. So it's not a blanket healthcare play — it's companies with stable, predictable revenue streams. Luna: Which brings us back to earnings quality. What should listeners look for if they want to pick individual defensives? Lucas: Three things. First, return on equity — look for above 15 percent consistently. Procter & Gamble runs around 30 percent. Second, debt to equity ratio below 1.0, ideally. And third, earnings per share growth that hasn't been negative in any of the last five years. Luna: That's a pretty high bar. How many consumer defensive stocks actually clear it? Lucas: Maybe 20 to 25 in the entire S&P 500. But that's the point — when the market rotates, it doesn't rotate into everything. It rotates into the names with the strongest fundamentals. I'd add one more: dividend growth. Companies that have raised their dividend for at least 10 consecutive years. That signals management confidence. Luna: So the classic 'Dividend Aristocrats' list. Coca-Cola, PepsiCo, Walmart, those kinds of names. Lucas: Exactly. And many of them are trading at or below their historical average P/E. Coke is at about 24 times, which is actually below its 10-year average of 27. So you're not overpaying. Luna: But is this a short-term trade or a longer-term shift? I mean, if the Fed eventually cuts rates — maybe not this year, but next — doesn't that reignite the growth trade? Lucas: It could. But remember, the Fed's dot plot now shows several members expecting a hike in 2026. That's a very different environment from the 'lower for longer' narrative we had six months ago. If rates stay higher for longer, the earnings stability of defensives becomes more valuable. Luna: And if we do get a recession — or even a slowdown — defensives typically hold up better. Lucas: Right. In the 2020 recession, consumer staples fell about 10 percent peak to trough, while the S&P 500 fell 34 percent. So they're not immune, but they're a lot less volatile. For listeners who are nervous about the second half of the year, rotating a portion of their portfolio into defensives makes sense. Luna: What about the risk that defensives get too expensive? If everyone piles in, the P/E could expand beyond fair value. Lucas: That's a real risk. I'd look at the relative P/E ratio — the defensive sector's P/E compared to the broader market. Right now it's about 0.85, meaning defensives are trading at a 15 percent discount to the market. Historically, when that ratio gets above 1.0, defensives are overvalued. We're not there yet. Luna: So there's still room. But you'd want to set a sell target if that ratio starts approaching 1.0. Lucas: Exactly. I'd also watch the earnings calls. If companies like Procter & Gamble start reporting weaker volume growth — say, below 2 percent — that could be a warning sign that the defensive trade is getting crowded. Luna: Volume growth is key because pricing power only goes so far. Eventually, if people buy less, revenue stalls. Lucas: Right. So to sum up this episode's specific takeaway: the rotation into consumer defensives is real and has fundamental support, but it's not a buy and forget move. Pick names with high ROE, low debt, consistent EPS growth, and a dividend growth track record. And keep an eye on relative valuation. Luna: And if the Fed does eventually cut, you'll want to be ready to rotate back into growth. But for now, the data says defensives are the safer bet. Lucas: Yeah. The market is sending a signal — it's worth listening. Luna: Alright, that's it for today. Thanks for listening to Stock Picking with Fexingo. Lucas: We'll be back tomorrow with another angle. Until then, keep your eyes on those earnings reports.