In most cases, the S&P 500 (^GSPC 0.24%) 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.
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.
Image source: Getty Images.
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 (XLP +0.69%) specifically relative to the S&P 500, represented by the State Street SPDR S&P 500 ETF (SPY 0.21%) over the past quarter-century.
Fundamental Chart data by YCharts.
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.
SPY Total Return Price data by YCharts.
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.
What happens next?
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.
Either the consumer staples sector needs to reverse course sharply, or the S&P 500 needs to correct.
Given current market trends and questions around tech capex spending, valuations, and the health of the labor market, it would suggest that the latter is more likely. Given that the 10-year Treasury yield has fallen by roughly 20 basis points since the beginning of February, I believe broader risk-off sentiment is deepening.
A correction in the S&P 500 isn't a guarantee even with this signal. But the S&P 500 is looking especially vulnerable to one.
