Defensive Sectors Lead as Cyclicals Lag

Defensive sectors still lead, while cyclical damage remains unresolved.

Sector leadership remained firmly with Energy Select Sector SPDR Fund (XLE). Its three-month momentum — the rate at which price has changed over the past 13 weeks — was 22.8%, down 7.8 points on the week. It remained extended into strongly positive territory and near its own 1-year high. The pullback pointed to velocity exhaustion, and XLE was decoupling from broad market moves as beta and correlation fell further into inverse territory. Even after that slowdown, no other sector matched its absolute lead.

Defensive sectors provided the clearest confirmation of where leadership sat. Utilities Select Sector SPDR Fund (XLU) rose to 11.2%, up 3.1 points, extending gains and moving near its own 1-year high, while registering a breakout (three-month momentum has risen above the median of its own 52-week momentum history). Real Estate Select Sector SPDR Fund (XLRE) climbed to 6.4%, up 2.7 points, also extending gains near its own 1-year high and posting a breakout. Consumer Staples Select Sector SPDR Fund (XLP) stayed positive at 4.5%, down 1.5 points, with momentum flat week-over-week. Breadth (the share of ETFs with positive momentum) was 54.5%.

The cyclical side continued to lag. Technology Select Sector SPDR Fund (XLK) improved to -2.3%, up 3.3 points, attempting to find a floor but still near its own 1-year low. Health Care Select Sector SPDR Fund (XLV) fell to -6.0%, down 0.8 points, in an ambiguous regime, direction unconfirmed, and decoupling from broad market moves. Consumer Discretionary Select Sector SPDR Fund (XLY) stayed the laggard at -9.1%, down 0.7 points, deep in negative territory. The sector regime (the prevailing momentum direction) therefore still favored defensives, while cyclical damage remained unresolved.

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