The S&P 500 just set a new high for the first time in more than a year, and yet despite the prolonged period of stagnant performance, the bears are rather vocal, suggesting that the latest rally, fueled by a dovish Federal Reserve, warrants caution.

Is the bearish camp right? The implications of this debate go beyond just which camp is right but is critical for the way investors should allocate their investment portfolios.

When examining the year-to-date performance of each sector up to the June lows it seems that the bears are right.

As the chart below illustrates, when comparing the performance of sector-based SPDR exchange-traded funds such as Consumer Discretionary SPDR and Technology SPDR, it is actually the Utilities SPDR that comes out on top with a return of 18.2% up to June 27. The second-best performing sector, Real Estate Select Sector SPDR, which lagged utilities significantly, with a 5.4% return.

The worst-performing sector was Financials Select Sector SPDR, with a loss of 8.2% for the year to date.

How has a lackluster sector such as utilities been able to outshine all the rest and by such a big margin?

Utilities is considered a defensive sector with higher-than-average dividend yields. This allows investors to secure a return higher than Treasuries yet with relatively low risk.

In other words, investors, up until the yearly lows, were running for cover rather than being upbeat.

During the same period that the run-for-cover scenario was in force, the Chicago Board Options Exchange's 10-year interest rate contracts (in green) plunged to a four-year low of 1.46%. That signaled that investors expect rates to remain lower for longer.

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But there is a twist to the plot. When measuring performance by sector in the aftermath of the June lows, the picture is utterly different.

Since the June lows, the CBOE 10-year rates have jumped, and the best-performing sectors were financials, technology and consumer discretionary, all clear growth plays

And the defensive utilities sector? It was the worst-performing sector in the aftermath of the June lows.

Appetite for growth stocks in on the rise following the latest U.S. job data, which beat estimates with robust growth in non-farm payrolls of 287,000, alongside some high-profile earnings beats. Sentiment is shifting from defensive in the first half to growth in the second half.

In fact, this is the exact opposite of the bearish camp claims. Growth stocks have rallied alongside rising 10-year rates.

If anything, the latest rally is fueled by a brightening growth outlook rather than lower rates, as the bears imply.

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Despite the positive twist in the plot, there are still two major pitfalls that could seriously undermine the foundations of the rally and put the bears back in the driver seat: jobs and earnings.

The growth in non-farm payrolls growth in June was impressive. It suggested that hiring momentum is back, which would support wages growth and consumer spending, one of the strongest contributors to U.S. economic growth.

But the June numbers could still prove to be a one-time bounce. This is the clearest short-term risk for the rally.

If numbers in July fall back, it could quickly amend Wall Street's appetite for growth stocks and once again favor the defensive play and the bearish camp.

The second pitfall, albeit more of a mid-term one, is earnings.

Despite some noticeable beats, according to the Financial Times, "the overall expectation is for earnings to fall 5.5% year over year."

The recent rally is based on the premise that earnings will return to growth. Once the second earnings season for this year concludes investors will seek a more moderate fall than the 5.5% initially expected.

But a 5.5% contraction is a rather low bar of expectations and easy to beat. As optimism grows, the bar for the third quarter will be much higher, and a higher bar will leave plenty of room for disappointment.

If expectations are missed it could hit hopes for higher earnings and invalidate the bullish scenario of earnings growth, which would favor the bearish case.

So far, the way it looks, the bears are wrong. The focus of sector performance year to date misses the context of the latest rally that started a little less than a month ago.

There are some pitfalls that warrant prudence, but ignoring the latest shift into growth stocks and playing defensive with utilities is shaping up to be an outright losing game.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.