With U.S. markets giving back half of the gains made in October and international equities erasing nearly all of the move higher, investors are understandably nervous about the prospects for any kind of Santa Clause rally into the final stretch of the year.

As I wrote earlier, Italy changed market internals just enough to shift sentiment and the conditions under which rallies have the highest probability of occurring in. [Italy ETF Sends Warning]

U.S. Treasuries are certainly scared given that once again we find ourselves at panic low yields. More so than that, every rise in yields seems to be immediately sent back down fairly quickly as investors pile in and realize that, despite unprecedented policy efforts by fiscal and monetary authorities, inflation is no where to be found. If the bond market is right, what will be the stock market’s reaction be to the consumer? [Treasury ETFs Rally]

To answer this, take a look below at the price ratio of the SPDR S&P Retail Index ETF (NYSEArca: XRT) relative to the S&P 500 (NYSEArca: IVV). As a reminder, a rising price ratio means the numerator/XRT is outperforming (up more/down less) the denominator. Focus less on the actual ratio itself and more on the underlying trend.

As we can tell from the chart, retailers have on average significantly outperformed broad market averages going all the way back to late 2008. The outperformance has been fairly consistent and continued even this year despite worsening U.S. economic data. However, the longer something outperforms for, the more likely it is to embark on a period of weakness (mean reversion). There are studies that show that industries which do particularly well/poorly over a rolling three year period tend to not do as well/better over the next three.

This seems to be an ideal time to think thatrRetailers may begin to underperform in a sustainable way. Notice that it appears as though the price ratio is in the process of “rolling over,” just as investors come around to the idea that deflation could dramatically impact consumer spending patterns. The above price ratio will be an important one to watch in the months ahead given what it could mean for broader economic health.

The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.