The Consumer Staples vs S&P 500 ratio sits at 0.123, near its lowest level since early February.
Here’s the chart:
Let's break down what the chart shows:
The chart shows the ratio of Consumer Staples relative to the S&P 500 as a black line.
The Takeaway: The market is starting to price in less geopolitical risk.
Talk of a ceasefire in the Iran conflict is easing some of the fear that had built up earlier this year. When that pressure fades, defensive trades lose their bid and Consumer Staples sit right at the center of that safety trade.
Consumer Staples relative to the S&P 500 ratio now sits at 0.123, near its lowest level since early February. The longer trend has been moving lower since 2022. Each rally attempt has produced a lower high and each decline pushed the ratio to another fresh low.
The latest rally tried to flip the trend. The ratio rallied back into prior support that broke earlier in the decline. That level flipped into resistance and the move failed there. The ratio has rolled over again.
Staples tried to take leadership and failed.
Now price has printed another lower high.
When this ratio falls, investors are selling their safety trades. Money is rotating out of defensive names and back into higher beta areas of the market.
That rotation usually lifts cyclical sectors like Technology, Semiconductors, Industrials, Financials, and Consumer Discretionary.
So, if safety is losing ground again, which sectors step up next?
Grant Hawkridge | Chief Aussie Operator, All Star Charts
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