There’s a lot to like about this bull market.
Breadth has improved. Emerging markets are breaking out. Small-caps are rotating higher. New 52-week highs on the New York Stock Exchange (NYSE) are expanding.
That’s not what major tops are made of.
But markets are not one-dimensional. And while the headlines point to strength, the sector rotation beneath the surface is starting to raise some real questions.
Since last spring, capital had been flowing the way you’d expect in a healthy expansion.
Money rotated out of defensive areas like consumer staples and low volatility and into offense: technology, communications, consumer discretionary, financials – the types of groups that typically lead during durable bull runs.
That was the character of the market for most of the last nine months of 2025.
So far this year, the script has flipped.
Energy and materials are leading. Consumer staples are up nearly 15% year to date.
Meanwhile, financials, technology, consumer discretionary, and communications, last year’s offensive leaders, are lagging badly.
With the S&P 500 down on the year, consumer staples sitting near the top of the leaderboard is not exactly what you want to see.
Defensive leadership is not inherently bearish. But when it persists while the broader market struggles, it forces us to ask a harder question:
Is this just temporary rotation, or is the market quietly preparing for something bigger?
Let’s look at the chart that has my full attention right now.
Consumer Staples: The New Leaders
This is the chart that has my full attention right now:
We’re looking at consumer staples relative to the S&P 500 pushing to its highest levels since July. At the same time, staples relative to consumer discretionary is back to levels not seen since June.
That’s not normal bull market behavior.
When staples are outperforming the broader market and crushing discretionary like this, it tells you investors are choosing safety over growth.
And we’ve seen this movie before.
Look back to the last time staples made a similar relative surge. During that January-through-April stretch, the S&P 500 fell more than 15%. The Nasdaq-100 dropped 18.5%. The Russell 2000 lost more than 20%.
Defensive leadership didn’t stay contained. It eventually showed up in the major averages.
We haven’t seen that kind of damage this time, not yet.
Which raises the real question.
Does this rotation into defensive assets fade and reverse? Or does it continue long enough to pull the broader indexes down with it?
That’s where weighing the evidence becomes critical.
Weighing the Evidence
In moments like this, I think about something Frank Teixeira once said.
Frank, who spent more than two decades as a partner, portfolio manager, and director of technical research at Wellington Management, had a simple framework.
He would literally hold up one hand and say, “On one hand, we have this evidence.” Then he would raise the other and say, “And on the other hand, we have this.”
Then he would weigh them.
That’s the job.
On one hand, we have new all-time highs in emerging markets. We have rotation into small-caps. We have the strongest expansion in NYSE 52-week highs in over a year.
Those are not characteristics of a market rolling over into a major top.
On the other hand, money continues to flow into consumer staples and away from the offensive groups that powered the last leg higher.
That’s not a random development.
So the question becomes, which hand is heavier?
How long can strength in emerging markets, small-caps, and select cyclicals prop up the major averages while leadership quietly shifts toward defense?
In football terms, if your offense is on the field, you call your offensive plays.
But if the quarterback, half the offensive line, and your star running back are all on the bench, what exactly are we running?
That’s where we’re starting to find ourselves.
Either money rotates out of consumer staples and back into technology, financials, and consumer discretionary, restoring offensive leadership, or the major averages eventually catch down to the defensive message.
There is no third option.
Rotation back to offense, or resolution lower.
And, until proven otherwise, the most bearish chart in America remains consumer staples relative to consumer discretionary and the S&P 500.
That’s the tell.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs