Sector Momentum: Two Sectors Are in Breakout
Defensive Rotation Broadens Leadership
Breadth is thin and the upper tier is broader as of October 30, with five of the eleven S&P 500 sector ETFs above zero on 3M momentum. Energy XLE leads at 18.3%. The median is -0.4%, and the spread across sectors is 25.7pp, with Communication Services XLC last at -7.4%. Two sectors are in breakout, and six sectors are below zero.
Consumer Discretionary 3M Momentum Turned Negative
XLE's 3M correlation to SPY is -0.54, a moderate inverse link that separates the top-ranked sector from the index. Healthcare XLV climbed to 14.2% on a 3.5pp gain and is in breakout. Consumer Staples XLP joins the upper tier, and Materials XLB is in breakout at 5.1% after a 4.5pp rise. XLB's beta is 0.40, muted amplitude for a cyclical improver.
Consumer Discretionary XLY turned negative at -0.4% after a 4.0pp drop this week. Three cyclical sectors are below zero: XLY, Financials XLF, and Industrials XLI.
Communication Services XLC is in breakdown at -7.4% after a 7.0pp drop, and its beta is 0.98, near market amplitude. Utilities XLU rose 6.0pp to -1.4%, and its 3M correlation to SPY is -0.10, a weak inverse link. Real Estate XLRE and Industrials XLI improved from lower bases, and both are negative.
Breakout: 3-month momentum above the group median and in the top half of the fund's own 1-year momentum range, after a weekly rise in momentum in the top quarter of the group.
Breakdown: 3-month momentum below the group median and in the bottom half of the fund's own 1-year momentum range, after a weekly fall in momentum in the bottom quarter of the group.
S&P 500 Sectors ETFs Heatmaps
How to read: each cell is the ETF's price change over the previous 13 weeks, as of that week. Read across a row to see its momentum build or fade over the last 13 weeks; read down the last column to compare ETFs this week.
How to read: each cell is how closely the ETF's weekly returns moved in the same direction as SPY over the 13 weeks to that date: 1 moves with SPY, 0 moves independently, below 0 moves opposite. It says nothing about how far it moved.
How to read: each cell is how far the ETF moved for each 1% move in SPY, over the same 13 weeks: 1.0 moves in line, 1.5 moves half as much again, 0.5 half as much. Read it with correlation: a high beta only describes the ETF's typical move when its correlation is high too.
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.
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