Sector Momentum: Three Sectors Broke Out

Leadership Rotates Beyond Growth

Leadership rotated beyond growth as of August 21, with eight of the eleven S&P 500 sector ETFs positive on 3M momentum and a 22.1pp spread from Healthcare XLV at 17.0% to the laggard at -5.1%. The 2.1% median sits well below the leader, and three sectors broke out while two broke down. The 8 positive sectors broaden the leadership base beyond technology, but the 22.1pp spread shows a cross-section that is less uniform than the breadth count suggests.

XLV added 1.1pp over the week and has been positive since June 5; its -0.49 correlation to SPY gives the leading sector an inverse link to the benchmark. Financials XLF ranks next at 11.1%, and Energy XLE and Materials XLB follow at 7.7% and 6.9%. XLB is in a convex uptrend, and XLE broke out after a 2.8pp weekly gain. The top tier pairs defensive leadership with cyclical participation, so the rotation spans more than one macro trade.

Consumer Discretionary 3M Momentum Crossed Below Zero

Consumer Discretionary XLY turned negative this week at -0.8% after a -2.4pp drop. Utilities XLU also turned negative at -5.1% after -6.7pp, and its -0.38 correlation to SPY is a short-window inverse reading off a near-zero baseline. The negative side spans cyclical consumption and defensive yield, so the laggard cluster is heterogeneous.

Technology XLK fell to 1.7% after a -6.2pp drop and broke down toward the lower end of its yearly range; its 2.07 beta keeps the growth retreat concentrated in amplified exposure. Industrials XLI dropped to 5.2% after -3.9pp, Consumer Staples XLP and Real Estate XLRE each hold 2.1%, and Communication Services XLC sits at -3.3%. Technology's breakdown and the 2.1% middle shelf in staples and real estate place the former growth leaders in the middle and lower half of the table.

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.