In most cases, S&P 500 Index (SNPINDEX:^GSPC) Hitting all-time highs is a good thing. It signals confidence that the current economic situation is good and will likely continue to be so in the future.
But sometimes, there’s a hidden warning there. From 2023 to 2025, the bull market will be led by technology stocks and growth stocks. This is what you would expect to see during a major market expansion.
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However, things are different in 2026. The S&P 500 remains near all-time highs, but technology has been one of the worst-performing sectors so far this year. Instead, we saw energy, consumer staples, industrials, materials and utilities stocks leading the gains.
When consumer staples and utility stocks outperform the S&P 500, investors should remain cautious. Investors turn to these sectors when they generally feel more cautious or nervous. But the S&P 500 remains close to its all-time high. Which narrative is correct?
Let’s take a look at the consumer staples industry, represented by State Street Consumer Staples Select Sector SPDR ETF (NYSE: XLP) Especially relative to the S&P 500 Index, with State Street SPDR S&P 500 ETF (NYSE: SPY) over the past quarter century.
When the line is trending higher, Consumer Staples outperforms the market. We’ve seen this happen at fairly obvious times in history – the tech bubble, the financial crisis, the 2022 bear market.
Then by 2026, the rate rose sharply. On a long-term chart, this is still a mild phenomenon, but it’s there.
Now, let’s overlay a chart of the S&P 500 falling over the same time frame.
As expected, the two lines are almost completely negatively correlated. When consumer staples outperform, it’s almost always during a downturn in the S&P 500. Conversely, when the industry is lagging, the S&P 500 is either at new highs or on its way to new highs.
In fact, every spike in the Consumer Staples-to-S&P 500 ratio resulted in a correction of more than 10% for the index. Just recently, we saw this play out during the first quarter of 2025 “Liberation Day” scare. This happens during the 2022 bear market. It happened (albeit briefly) during the COVID-19 recession. Corrections and/or bear markets occurred in 2016, 2008 and 2001, when consumer goods dominated the market.
Today, the Consumer Staples Index is outperforming the S&P 500 by a wide margin, but there is no correction. To bring this relationship back into line with historical norms, one of two things needs to happen.
