The Capital Spectator makes the case for playing defense in consumer stocks. The underlyling thesis being that consumer spending in general is going to have to slow. Therefore stocks that are exposed to consumer spending will be weak, whereas consumer noncyclicals, i.e. food, will be relative winners.

Does this all add up to a warning of things to come from an investment perspective? It’s starting to look that way to judge by a performance comparison between the consumer staples and consumer discretionary sectors of the S&P 500 stock market index. This year through October 31, for instance, consumer staples posted a 1% total return. That’s slightly better than the S&P 500’s slightly loss over the same period (down 0.4% year to date). More importantly, the consumer staples sector (which includes such stocks as Colgate-Palmolive, Campbell Soup, General Mills and other firms whose sales are relatively immune from economic cycles) handily beats the nearly 10% loss for consumer discretionary equities, whose fortunes are more closely tied to sales of items that aren’t essential and thus subject to the winds of expansion and recession. Buying a new widescreen TV is fun, but it’s a purchase that can be delayed. Don’t try that with food.

The challenge is correctly timing the length and breadth of the consumer spending slowdown. Another factor will be the state of the U.S. housing market and its effect on consumer sentiment and spending.