Coca-Cola Stock Has Been Struggling. The Tables Have Turned for Consumer Staples.

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Coca-Cola

stock rounded out a lackluster eight-day stretch of trading Friday, weighed down by investor concerns over the consumer staple sector.

Throughout 2022, consumer staples were a safe haven for investors seeking refuge from market volatility and high inflation. The

Consumer Staples Select Sector SPDR Fund
(ticker: XLP) lost 3.3% last year, an impressive performance given the

S&P 500
declined 19%. Coca-Cola (KO) helped drive the staples ETF higher, gaining 7.4% in 2022.

That dynamic has flip-flopped this year as inflation and recessionary fears started to ease. The consumer staples ETF is down 4% this year, while the broader S&P 500 has gained 16% and the

Consumer Discretionary Select Sector SPDR Fund
(XLY) is up 30%.

“Safety sectors, such as utilities and staples, remained notably weak during the market pullback in August and have yet to show any meaningful technical evidence of improving despite becoming oversold,” said Robert Sluymer, technical strategist at RBC Wealth Management, in a Tuesday note. Coca-Cola is illustrative of the category’s weak performance, Sluymer added.

Coca-Cola did not immediately respond to Barron’s request for comment.

But there might be other factors at play, too. Coke is down 8.3% this year, worse than the broader consumer staples sector.

Coke stock ended Friday unchanged from Thursday at $58.33, snapping what would’ve been an eight-day losing streak. It was, however, the lowest close for shares—excluding yesterday’s close—since Oct. 24, 2022, when shares closed at $57.57. Last October, there were concerns that unfavorable foreign exchange rates and a strong dollar would weigh on the company’s results.

This time around, a deceleration in the pace of inflation could be hurting Coca-Cola and other staple stocks. Many consumer staple companies were able to grow revenue last year by raising prices in response to inflation. Now that inflation is slowing, companies aren’t able to raise prices as much.

“Our pricing is largely in place and is expected to moderate as we cycle pricing initiatives from the prior year,” said Coca-Cola CEO James Quincey in the company’s latest earnings call with investors.

Citi analyst Simon Hales noted earlier this week that he was starting to see a sales slowdown in beverage and household products, as companies’ pricing power starts to wane.

Coca-Cola is still one of Hales’ top picks in the sector. The company beat second-quarter earnings and sales expectations, and raised fiscal-year guidance. Coca-Cola’s average selling prices increased 10% in the second quarter, even though global unit volumes were flat and modestly declined in the U.S.

Write to Sabrina Escobar at sabrina.escobar@barrons.com