However, to start the new year, investors have displayed a preference for more conservative consumer staples names, such as those found in the Consumer Staples Select Sector SPDR (NYSEArca: XLP), over discretionary equivalents. A rising staples/discretionary ratio is seen as a potential warning sign for the broader market.

The quick explanation of the staples/discretionary ratio is that investors, excluding those that want to see equities fall, want to see the ratio falling because that means markets are favoring the higher beta discretionary sector over its staples counterpart.

For a good portion of the time since the March 2009 market bottom, the XLP/XLY has been cooperative and conducive to increased risk appetite, but there have been periods when the ratio has signaled reduced risk was the way to go and that could be the case again now. [Bad News From Consumer ETFs]

Consumer Discretionary Select Sector SPDR