3 Consumer Staples Stocks For A Shaky September

Consumer confidence – a key determinant of the economy’s health – has been improving significantly of late. A gradual recovery in the housing market as well as the manufacturing sector played a crucial role in raising buyers’ confidence. Cheaper gasoline prices and a strong labor market increased household wealth, which eventually boosted consumer spending.

Positive GDP also lifted stocks. In addition to this, growth was boosted by a pickup in construction spending, increased business spending on equipment, a bigger buildup in inventories and higher government spending.

However, markets experienced a dismal month in August, weighed down by concerns about China and uncertainty over the timing of interest rate hike by the U.S. Federal Reserve.

Performance in August

For the month, the S&P 500, the Dow and the Nasdaq plunged 6.3%, 6.6% and 6.9%, respectively. While the Dow notched up its biggest monthly decline in more than five years, the S&P 500 and the Nasdaq registered their steepest monthly losses since May 2012. All the major indexes moved in and out of their correction territory to end a volatile month in the red.

Benchmarks slumped for the month on concerns that a weak Chinese economy would result in a global slowdown. The recent move by China’s central bank to cut interest rate and devalue its currency to prop up growth, also failed to calm investors. In fact, investors’ fears were heightened after the continual stock market losses in the last week of August. Benchmarks also closed in the red, following the yuan’s devaluation.

Amid a derailed Chinese economy, the U.S. Federal Reserve’s pending decision over the hike in the benchmark interest rate, known as the federal funds rate, remains another major cause of concern.

Last Saturday, Fed vice-chairman had hinted for a possible hike in interest rates in September, which has been set at a record low of 0.25% since Dec 2008. While the effect of interest rate hike in September could draw investment funds out of emerging markets and put them back in the U.S.; a weakening Chinese economy will become an overhang on global stock markets and heighten investors’ concern.