In most cases, the S&P 500 (SNPINDEX: ^GSPC) hitting new all-time highs is a good thing. It signals confidence that the current economic conditions are good and are likely to continue being so into the future.
But sometimes, there’s a hidden warning in there. From 2023-2025, the bull market was led by tech and growth stocks. That’s what you’d expect to see during a big market expansion.
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However, 2026 has been different. The S&P 500 is still sitting near all-time highs, but tech is one of the worst-performing sectors year to date. Instead, we’re seeing energy, consumer staples, industrials, materials, and utilities stocks leading the way.
When consumer staples and utilities stocks are beating the S&P 500, investors should take caution. These are the sectors that investors pivot into when they’re generally feeling more cautious or nervous. But the S&P 500 is still near all-time highs. Which narrative is the correct one?
Let’s take a look at the consumer staples sector, represented by the State Street Consumer Staples Select Sector SPDR ETF (NYSEMKT: XLP) specifically relative to the S&P 500, represented by the State Street SPDR S&P 500 ETF (NYSEMKT: SPY) over the past quarter-century.
When the line is trending higher, consumer staples are outperforming the market. We see this happening during fairly obvious periods in history — the tech bubble, the financial crisis, the 2022 bear market.
Then there’s 2026, when this ratio moved sharply higher. It’s still a modest blip on a longer-term chart, but it’s there.
Now, let’s overlay a chart of S&P 500 drawdowns over the same timeframe.
The two lines, as expected, are nearly perfectly inversely correlated. When consumer staples outperform, it’s almost always during a downturn in the S&P 500. Conversely, when the sector lags, the S&P 500 is either at or moving toward new highs.
Virtually every spike in the consumer staples-to-S&P 500 ratio has also resulted in a 10%+ correction for the index. Just recently, we saw it happen during the first-quarter 2025 “Liberation Day” scare. It happened during the 2022 bear market. It happened during the COVID-19 recession (albeit briefly). 2016, 2008, and 2001 all saw corrections and/or bear markets when consumer staples led the market.
Today, consumer staples is sharply beating the S&P 500, but without the correction. In order to bring this relationship back in line with the historical norm, one of two things would need to happen.
