During bull markets, my job is to stay alert.
I’m always hunting for cracks beneath the surface. Small shifts. Subtle changes. Anything that could signal a bigger problem before it becomes obvious to everyone else.
During bear markets, I do the opposite. I look for early signs of improvement. Evidence that conditions are stabilizing and risk is starting to shift back to the upside.
That isn’t being bearish or bullish. That’s risk management.
Markets have a nasty habit of punishing complacency. The moment you get comfortable, they tend to remind you who’s actually in charge. We’ve all felt that knife in the back at some point.
If you haven’t yet, don’t worry. The market eventually humbles everyone.
Right now, there are a few developments that deserve our full attention. None of them are loud. None of them are headline-driven.
But together, they raise an important question about the underlying health of this market.
Let’s start with where money is quietly flowing.
Strength in Consumer Staples
In healthy bull markets, there’s little demand for consumer staples stocks.
These are the products people buy no matter what. Good economy or bad. Boom or bust. Toilet paper, toothpaste, soda, potato chips, laundry detergent, cigarettes. The basics.
That’s why strength in this group matters.
When paper towels and condom stocks start outperforming the broader market, it’s usually a warning sign. Investors are quietly shifting toward safety, even as the headlines stay optimistic.
For most of this bull market, that hasn’t been the case. Consumer staples have been persistent underperformers. In fact, they were the worst-performing sector in 2025.
Last year, the Consumer Staples Select Sector SPDR ETF (XLP) returned just 1.5%, compared to a 17.7% gain for the S&P 500.
But so far in 2026, the script has flipped.
Consumer staples are already up 6.5% year to date, while the S&P 500 is up just 1.5%. That shift shows up clearly in the relative performance.
In blue, the S&P 500 is still pushing to new highs. But in black, the S&P 500 has been making lower highs relative to consumer staples:
If you’re bullish stocks and expect higher prices, you want to see that black line turn higher, and quickly.
This isn’t a quirky sector rotation or a cute chart to laugh off.
This is one of the most consistent indicators we have for assessing the underlying health of the market.
If that line continues to roll over, it’s a message investors should not ignore.
Relative to Financials It’s Worse
You already know my stance on financials. We don’t have bull markets without them.
So when financials are sitting at the bottom of the leaderboard as the worst-performing sector year to date, it immediately gets my attention.
That concern only grows when the weakness in financials is happening at the same time consumer staples are showing strength.
That combination is not what you see in a healthy market. At the very least, it’s not sustainable.
When you look at financials relative to consumer staples, the message becomes even clearer. That ratio just hit new five-month lows:
And it isn’t just breaking down. It’s doing so from an important area.
The ratio has now fallen back below the prior highs from February and July 2025, and it has also lost the key pivot low from October.
Former support is failing. That’s a problem if you’re long the broad averages.
It’s not subtle. It’s not debatable. And it’s definitely not a good look.
If you’re bullish, you need to see this line snap back quickly. Not eventually. Not after a few more headlines. Quickly.
Because when multiple warning signs start stacking on top of each other, the burden of proof shifts.
In a market like this, the tape is already guilty until proven innocent.
If these relationships don’t recover soon, the market won’t need headlines to do the damage.
It’ll do it all by itself.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs