Sector Momentum: Energy Jumped 6.5pp to 20.5%

Inverse Leaders Reshape Sector Rotation

Five of the eleven S&P 500 sector ETFs are above zero as of September 18 on 3M momentum, yet a 28.1-point spread from Energy XLE at 20.5% to the lower tail leaves the field stratified. The median rose to -0.8% from -1.9%, and two breakouts account for most of the distance above zero. Defensive groups and inflation-linked exposure occupy the positive side, while growth and cyclical laggards fill most of the negative half. Sector rotation rewards isolated offsets to SPY, with leadership concentrated in a few groups.

XLE jumped 6.5pp over the week and has been positive for 10 weeks; its -0.46 correlation to SPY makes the breakout strong and diversifying. Healthcare XLV climbed 5.2pp to 13.2%, and its -0.30 correlation puts the second breakout on the same inverse side of the market. Financials XLF at 4.6%, Communication Services XLC at 1.5%, and Consumer Staples XLP at 0.1% complete the positive tier, with XLF down 3.1pp and XLP barely above zero. The positive half is concentrated in groups that offset SPY rather than amplify it.

Technology XLK 3M Momentum Turned Negative

Technology XLK turned negative at -0.8% after a 2.5-point drop, and its 1.76 beta puts that momentum turn negative in a high-amplitude growth segment. Consumer Discretionary XLY fell to -5.0%, Materials XLB slid to -3.2%, and Real Estate XLRE improved to -2.2%. The growth side lost its last shallow cushion, so the sector middle shifted below zero.

Industrials XLI broke down at -5.9% after a 4.0-point fall, and its 0.55 beta makes the deterioration muted relative to the level. Utilities XLU dropped to -7.6% and also broke down, though its -0.32 correlation to SPY is a short-window inverse reading off a near-zero baseline. The lower tail combines cyclical weakness and rate-sensitive weakness, which spreads the drag across more than one style bucket. Sector dispersion rises because the winners decouple upward while several unrelated groups sink together.

S&P 500 Sectors ETFs Heatmaps

S&P 500 Sectors ETFs: 3M Momentum

S&P 500 Sectors ETFs: 3M Correlation vs SPY

S&P 500 Sectors ETFs: 3M Beta vs SPY

Romain Gandon
CEO, Quantlake

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Past performance is not indicative of future results.