Last November, I called on State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT: XLP ) as my top high yield exchange traded fund (ETF) to buy for passive income. My investment thesis focused on the fund’s quality stock holdings and reliable passive income.
I didn’t expect that the ETF is already up 13.2% in 2026, compared to a gain of just 1.3% in S&P 500. Here’s why the seemingly boring consumer staples sector is hot, and why the Consumer Staples SPDR ETF remains a buy for broad exposure to it.
Where to invest $1,000 right now? Our team of analysts just revealed what they think they are 10 best stocks to buy right now when you join Stock Advisor.
Image source: Getty Images.
Major holdings in the Consumer Staples Select Sector SPDR ETF include Walmart, Costco Wholesale, Procter & Gambleand Coca cola. These aren’t the kind of stocks investors expect to see skyrocketing growth or make pioneering strides in artificial intelligence (AI). But they can be relied on to produce strong results regardless of what the economy is doing, and many such companies pay stable and growing dividends.
You may have heard the term Dividend King, which refers to companies that have paid and increased their dividends annually for at least 50 consecutive years—names like P&G, Coke, PepsiCoand Colgate-Palmolive. Consumer staples dominate the group, making up 15 of the 57 dividend kings.
But the consumer staples sector has been under pressure from falling customer spending, and many companies are struggling to pass on higher costs through price increases. In fact, consumer staples was the worst performing stock sector in 2025. This year, it is the third best performing sector.
^ IXE data by YCharts.
Years of underperformance relative to the S&P 500 and a low valuation aren’t even the main reasons why the consumer staples sector is blowing up more in 2026. Rather, it has more to do with changing sentiment in growth-focused sectors like technology, communications and consumer discretionary. As such, the best performing sectors in 2026 were those focused on value and income, such as energy, materials, consumer staples and industrials.
As an example, Amazon and Microsoft they sold off after their last earnings reports and are down significantly year to date.
Amazon Web Services and Microsoft Azure are the two largest providers of cloud infrastructure services in the world. Amazon has announced $200 billion in capital expenditures (capex) in 2026, much of which goes to AI and cloud infrastructure.
Similarly, Microsoft now devotes more to quarterly investments than it did annually less than four years ago. There are concerns that these companies are overspending on AI.
And there is a real risk that spending will eventually exceed cash flow, meaning that some of the spending could be financed with debt. Investors who don’t like the risk and potential reward of these investments, the threat AI poses to software companies, or the expensive valuations of many semiconductor companies, might load up on value stocks instead.
This broader market dynamic – rather than the performance of the top consumer staples companies – is largely why the sector has performed so well. In fact, earnings continue to grow relatively slowly for many top consumer staples companies.
In conclusion, the sectoral recovery is mechanical, not fundamental.
Sector rotations and whether growth or value stocks are in favor or out of favor shouldn’t matter much to long-term investors. But I still think it’s important to be aware of these factors, especially when they unduly punish good companies or lead to somewhat unjustified quick releases.
The Consumer Staples Select Sector SPDR ETF could continue to rise if investors continue to flee from growth-focused stocks to value stocks. However, the best reason to buy the fund is not to make a quick buck, but rather if you want to fuel your passive income portfolio with a variety of industry leaders.
The fund remains a decent value with a price-to-earnings ratio of 24.1. Its yield is still solid at 2.6%. And the expense ratio is just 0.08%, or $8 for every $10,000 invested.
Overall, the fund isn’t as cheap as it was at the end of 2025, but it’s still a good core holding for risk-averse investors, especially those whose financial goals include generating reliable passive income.
Should you buy shares in the Select Sector SPDR Trust – State Street Consumer Staples Select Sector SPDR ETF right now? Before buying shares in the Select Sector SPDR Trust – State Street Consumer Staples Select Sector SPDR ETF, consider the following: Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and the Select Sector SPDR Trust – State Street Consumer Staples Select Sector SPDR ETF was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you would have $443,353!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $1,155,789!*Now, it’s worth noting Stock advisor average total return is 920% — a market-crushing performance compared to 196% for the S&P 500. Don’t miss the latest top 10 list, available with Stock advisorand join an investor community created by individual investors for individual investors.See the 10 stocks »*The Equity Advisor returns as of February 11, 2026.
Daniel Foelber has positions in Procter & Gamble and has the following options: Short February 2026 $150 Procter & Gamble calls. The Motley Fool has positions in and recommends Amazon, Colgate-Palmolive, Costco Wholesale, Microsoft and Walmart. The Motley Fool has a disclosure policy.
I predicted this ETF was a buy for passive income and it’s already up 13% in 2026. Is there more room to run? was originally published by The Motley Fool
