Comparing the Consumer Discretionary and Energy Sectors

Below is a chart of the ratio between the S&P 500 Energy and Consumer Discretionary sectors going back to 1990.  When the line is rising, the Energy sector is outperforming the Consumer Discretionary sector and vice versa.  As shown, throughout the entire bull market period from late 2003 to late 2007, the Energy sector outperformed Consumer Discretionary as the price of oil surged throughout the entire period. 

Once the price of oil collapsed in mid-2008, the ratio finally turned in the opposite direction as Consumer Discretionary began to outpeform Energy.  Then when stock prices began to rise again in 2009, Consumer Discretionary continued to outperform Energy, which was unlike what happened throughout the prior bull market.  This was a good sign because it meant the bull market was being driven more by the consumer and less by rising energy prices.  Unfortunately, however, the ratio bottomed in mid-2010 and has been rising ever since.  As shown in the second chart below, the reversal higher in the ratio came at the same time that the price of oil hit its 2010 low and began its current run higher from $68 to $111.

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