January is behind us, and we’re now entering one of the historically trickier stretches of the year for stocks.
At the same time, the S&P 500 has just reached a major upside objective — the 261.8% Fibonacci extension of the 2021–2022 bear market base.
Historically, these extensions have acted like magnets for price, often serving as key levels of interest.
If the S&P 500 can decisively break above 7,000 and hold that level, this bull market still has plenty of room to run.
But until that happens, it’s worth considering what a more challenging environment might look like for equities.
Historically, that’s an environment where investors rotate away from offense and toward defense — and that’s where one of my favorite risk gauges comes into play: Consumer Discretionary vs. Consumer Staples.
This ratio is one of the clearest windows into how large institutional money is positioned.
When big managers are leaning into risk, they overweight Discretionary — retail, travel, housing, autos.
When they get cautious, they rotate into Staples — toothpaste, soda, and other household essentials.
Right now, XLY/XLP is pulling back into a key zone.
If this area holds, risk appetite remains alive and well, and the S&P likely resolves higher.
But if it rolls over and falls back into its old range, equities could struggle.
Do you think risk appetite will hold, or are defensive names about to take over?
