So, why was the sector outperforming the S&P?
It seems like there's a bit of a herd mentality toward a least-bad alternative. Investors still prefer companies with high exposure to the U.S. economy and limited exposure to economies outside the U.S., figuring that the U.S. economy is in better shape compared to the rest of the world.
Read MoreGet ready, a correction is coming: Greenberg
A cursory scan of the 10 S&P 500 sector options reveals very few alternatives for growth aside from consumer discretionary. Energy and materials companies are suffering dramatic revenue declines due to the plunge in commodity prices, weak global growth, and the rise in the U.S. dollar. Industrials are getting hit by slower growth in China (and elsewhere), weak corporate investment, and high exposure to markets outside the U.S. Utilities and telecom companies, with their high dividend yields, have trouble drawing investment dollars in a rising interest-rate environment. Financials, and more specifically banks, are having a very difficult time generating revenue growth in a low-rate environment. Technology and consumer-staples companies have outsized exposure to markets outside the U.S. as well. This leaves very few options for investors to find high-visibility revenue growth – health care and consumer discretionary. But while the revenue growth has materialized in health care this year, we aren't yet seeing it in the consumer-discretionary sector.
Retail segments such as restaurants, auto parts, and home improvement, among others, have risen to very high valuation levels as investors have sought the perceived safety of a U.S.-centric revenue base. Will those valuations be justified? For the most part, it seems unlikely to us.
Read MoreWhy oil could drop into the $20s: Kilduff
Our sense is that the market is getting a little too optimistic with regard to future gains in consumer spending. While a better job market and lower gas prices certainly help, the overwhelming percentage of income and wealth gains achieved during this recovery have accrued to a small percentage of well-off consumers. Meanwhile, the middle class continues to struggle with low income growth, still-high debt levels, inadequate retirement savings, and higher expenses for necessities like health care, housing, education, and retirement savings.
So, to the extent that the big gains in retail stocks simply represent a squeezing of the balloon, it may make sense to take some of the chips off the table.