NEW YORK (TheStreet) -- The weather is finally getting warmer and consumer sentiment is improving, or so we were told today with the release of the University of Michigan Sentiment Index. The index moved up to 82.6 from 80 in the prior reading and is now at the highest level this year.
With this improvement, one would expect consumer cyclical stocks to be leading the markets higher but the opposite had been true for much of this year. The consumer cyclicals are currently the worst performing sector in the S&P 500 this year, and by a wide margin, down close to 5% on the year while the S&P 500 is flat (see chart below).
In stark contrast, the defensive utilities sector is the top performing sector this year. In the 2014 Dow Award-winning paper "An Intermarket Approach to Beta Rotation," my colleague Michael A. Gayed and I show why utility stocks in particular are historically a harbinger of higher volatility. We are seeing that first hand this year with utilities strength preceding both the January-February correction and the current pullback.
The combination of consumer cyclical weakness and defensive strength is notable, particularly this late in the cycle. The economic expansion will hit five years this June, and the bull market in stocks is already five years old. That doesn't necessarily mean that it has to end right here but investors should be on the lookout for warning signs as we are likely closer to the end than the beginning.