You can see the defensive rotation taking place as equity markets have sold off. Consumer staples and utilities are the two best areas of the market under our power rankings. Meanwhile, the poster child of the secular bull market, technology, is deep in the red.
A key chart to monitor is Consumer Staples $XLP priced in the S&P 500 $SPY. When this line is moving higher, it indicates that consumer staples are outperforming, which is a bearish signal.
Right now, the ratio is at a key inflection point.
I think with the indexes having retested their 2021 highs, the higher probability outcome is that consumer staples begin underperforming as money flows back into risk during an aggressive counter trend rally.
It's not often we see staples perform so well against the benchmark, and if this ratio were to continue ripping higher, it would be a cautionary signal to anticipate further downside in stocks.
