Last month we flagged the outperformance of consumer staple stocks relative to consumer discretionary was signaling the pullback albeit a small one — just over 3 percent around the Italian elections.
If you haven’t noticed staples (XLP) have been outperforming discretionary stocks (XLY) again even while the S&P500 (SPY) closes in on a new all-time high. Some argue it’s a reflection of the higher dividend yield on staples. Possibly, but 2.80 percent (XLP) vs 1.50 percent (XLY) is not a sufficient differential, in our opinion.
Thus, we’re nervous the market is getting ready to pullback a bit here. We’re also nervous that many others are nervous and that makes us nervous we may miss some upside. That, folks, is a good characterization of the current market psychology.
We’ve also included a chart with a longer time period. Note how the ratio led the S&P500 (SPY) during collapse and was first to bottom.
Wonder if the robots and algos get nervous. You think?
Click charts to enlarge
(click here if charts are not observable)