Sector Momentum: Financials Break Out while Technology Holds Lead

Cyclical Breadth Expands while Defensives Split

Breadth, the share of ETFs with positive momentum, stood at 81.8%, with 9 of 11 sectors above zero on 3M momentum, each ETF's trailing price rate of change. Dispersion, the spread in 3M momentum readings across ETFs, is 39.8pp from top to bottom. The sector regime is positive but uneven, with 6 of 7 cyclical and growth-sensitive sectors above zero, while the defensive split is 2 of 3 positive and 1 negative.

Participation broadened beyond the growth leader. Cyclical confirmation improved, but the structure is not uniform across all eleven sectors. The distribution leaves sector strength dependent on broad cyclical follow-through rather than a single defensive rotation.

Consumer Staples Turn Positive while Energy Decouples

XLK rose to 35.3%, +3.8pp on the week, leading the eleven S&P 500 sector ETFs (beta 1.48, correlation 0.90 to SPY, amplified and strongly correlated to SPY). XLP rose to 1.8%, +4.0pp on the week. XLE fell to 0.4%, -2.2pp on the week (beta -1.51, correlation -0.75, strongly inversely correlated and moving counter to SPY). XLU closed below zero at -4.5%, +0.0pp on the week, ranking last in the group. XLC closed at -2.1%, +2.5pp on the week. Sector leadership is concentrated, with a 30.8pp gap from XLK to the next-highest positive sector and 4.5pp from the leader to the next-strongest reading.

Financials and materials helped fill in the cyclical picture. XLF posted a breakout, 3M momentum in the top half of its one-year range and accelerating, at 9.7%, +5.7pp on the week (beta 0.44, correlation 0.51, moderate benchmark alignment at lower amplitude). XLB posted a breakout at 6.6%, +4.6pp on the week (beta 0.33, correlation 0.29, a lower-amplitude move with limited market linkage). XLI rose to 7.3%, +4.5pp on the week. XLY rose to 5.4%, +4.8pp on the week. The cyclical improvement is broad, with four sectors between 5.4% and 9.7%, and their SPY linkages are moderate rather than extreme.

Elsewhere, balance improved but did not dislodge the leader. XLRE rose to 8.1%, +3.2pp on the week. XLV rose to 3.1%, +2.5pp on the week. The sector regime is positive and more balanced than one week ago, but outright leadership still sits with Technology at 35.3%, so aggregate strength depends on one sector more than on uniform participation.

Momentum Heatmaps

S&P 500 Sector Momentum

Beta & Correlation vs SPY (3M Rolling)

S&P 500 Sectors: Correlation vs SPY

S&P 500 Sectors: 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.