BMO Capital Markets raised its rating on the U.S. consumer staples sector to "overweight" from "market weight" on Wednesday morning following Donald Trump's presidential election win.
The firm contended that one area where investors can turn for stability is consumer staples, where the risk-return profile is among the strongest of all U.S. sectors. BMO said the consumer staples sector is the most stable earner and price performer in the S&P 500.
But BMO downgraded the U.S. consumer discretionary sector to "market weight" from "overweight" as consumers will likely "freeze" and be scared off from volatility.
The consumer staples sector includes manufacturers of food, beverages, household goods and personal products. Consumer discretionary includes apparel and luxury goods, entertainment and leisure.
"The surprising election outcome is likely to put significant downside pressure on U.S. stocks over the near term, in our view. Admittedly, we believe U.S. stocks have been overdue for a correction, but we do not believe the election result alters our longer-term secular bull market outlook," BMO wrote in a note today.
As a result, any related weakness is likely to provide longer-term opportunities, according to the firm.
BMO said the Federal Reserve remains on target for a December interest rate hike unless any market volatility related to the election seeps into U.S. consumer and corporate America confidence levels.
"The consumer is the wild card - they could either embrace or fold; corporate America will likely remain on hold until tax and growth policies (which could be very positive longer term) are defined and clarified," the firm added.
Meanwhile, Deutsche Bank recommends tilting away from consumer companies with "tired" brands or those facing tough competition. The firm said to seek unique products and experiences.