From the desk of Willie Delwiche.

Key Takeaway: New monthly highs reflect broad participation and a healthy rally. Stocks struggle to celebrate blowout quarters if future growth prospects are not bright. Elevated expectations bar could leave stocks & the economy victims of their own success.

Sector-level leadership is unchanged in this week’s relative strength rankings. Materials, Industrials, Financials and Real Estate held down the top four spots for the second week in a row. Choppiness and rotation continue outside of that group. Rotation can also be seen in our industry group heat map. Improving conditions are widespread at the large-cap level and deteriorating conditions are widespread at the small-cap level (see page 5 for a chart version of this rotation). Mid-cap groups dominate the top of our industry group rankings (holding seven of the top ten spots).

From the desk of Willie Delwiche.

Key Takeaway: Stocks have benefitted from an historic stretch of good news. Commodities suggest higher inflation may not be transitory. Global breadth trends turning higher.

With both Energy and Communication Services faltering in recent weeks, the sector leadership group has narrowed to Materials, Industrials, and Financials. Materials, which took over the top spot in the rankings this week, is the rare sector right now that has been a leader on both a short-term and long-term basis. Health Care and Real Estate (both of which made new highs last week) are climbing in the rankings and if recent strength persists could soon join the leadership group.  Our industry group heat map shows continued leadership from mid-caps overall.

From the desk of Willie Delwiche.

Key Takeaway: Broad market strength gets front page treatment. German Bund yields pointing the way higher for US Treasury yields. Economic activity is booming, holding true to the post-recession historical pattern.

The Energy sector’s pullback from its March peak has finally caught up to it in our relative strength rankings. Even though Energy remains the top-performing sector in 2021, it plummeted from third to ninth in this week’s rankings. If it is unable to get back in gear in short order, it’s time in the leadership group could come to a swift conclusion. While Energy fell in the rankings, Materials and Real Estate both climbed higher. Industrials and Financials have been laggards of late, but remain in a leadership position overall. Our industry group heat map shows mid-caps leading, with large-caps improving and small-caps deteriorating.

From the desk of Willie Delwiche.

Key Takeaway: New highs bring out the bulls. Excessive optimism offset by broad market strength in the US & around the world. Despite Fed assurances of patience, rising bond yields will soon put pressure on the liquidity backdrop.

Their short-term performance has been mixed, but our relative strength rankings still have Financials, Industrials and Energy holding down the top spots. The still unanswered question from the past few weeks is whether the short-term trends (e.g., Technology in the top spot, Energy in the last spot) represent the beginning of sustainable shifts in leadership or are part of the process of digestion after longer-term trends moved too far in the other direction. A similar question presents itself when looking at the industry group heat map. Small & mid-cap groups dominate the top of the rankings, but large-cap groups appear to be on something of an upswing. 

From the desk of Willie Delwiche & Ian Culley. 

Key Takeaway: The overall market continues to digest gains within a larger structural advance. Market sectors that relate to tangible goods push to new highs. Traditional safe-haven assets fail to ensure safety.

Financial, Energy, Industrial, and Material sectors continue their reign in our relative strength rankings, while mid-cap groups narrowly surpassed small-caps to command the top-tier of our industry group rankings. Though more defensive sectors continue to have the best relative strength on a short-term basis, Technology and Consumer Discretionary are starting to pick up in the near term as well. Small-cap deterioration persists at the industry group level, whereas large and mid-caps improve.     

From the desk of Willie Delwiche.

Key Takeaway: Even with bottlenecks & distortions, economic recovery & cyclical rally remain intact. Tactical risks have risen as the market digests gains of last year. Watch bond yields & global participation for evidence that the rally is ready to resume.

Cyclical value sectors remain the leaders in our relative strength rankings and small-cap groups continue to dominate the upper-tier of our industry group rankings. But there is evidence beneath the surface of shifting trends. Rather than seeing a reversion back to growth leadership in our sector rankings, we are seeing defensive areas of the market start to heat up. Consumer Staples, Utilities & Real Estate have the best relative strength on a short-term basis. At the industry group level, small-cap groups are deteriorating while large-cap groups are improving.       

From the desk of Willie Delwiche.

Key Takeaway: Small-caps hit pause but remain market leaders. Another breadth thrust shows rally participation remains robust. Bond yields are digesting recent rise, but the path of least resistance remains higher.

The Technology sector continued its descent toward the bottom of the relative strength rankings. It dropped to its lowest ranking since mid-2016 and fell out of the sector leadership group (which based on a three-week smoothing of the current ranking) for the first time in two years. Technology is joined in the cellar by Utilities, Consumer Staples and Consumer Discretionary. Cyclical value leadership remains intact. Even though small-cap groups led the way lower last week, our industry-group rankings continue to show leadership from small-caps and mid-caps.     

From the desk of Willie Delwiche.

Key Takeaway: New high lists are expanding, yet investors are turning more cautious. Weight of the evidence favors focusing on opportunity over risk. Commodity market strength encouraging development for economy and investors. Rotation to cyclical leadership has just begun.

Energy has climbed to the top of our sector-level relative strength rankings, occupying the number one spot across all three capitalization levels. Energy hasn’t been at the top of the rankings since mid-2018. We are also seeing sector-level leadership (again across all capitalization levels) in Financials, Materials and Industrials. Previous leaders continue to drop in the rankings as “quality growth” has fallen out of favor. Stubborn investors are sitting on their hands, adaptive investors are listening to the market and following these new leadership trends. Industry group rankings show small-cap groups dominating the top of the rankings, and large cap groups dominating the...

From the desk of Willie Delwiche.

Key Takeaway: Crowded trades have come back to earth, but average stock and cyclical industry groups are making new highs. Economic momentum is building as recovery accelerates. Bond yields are still rising and long-awaited leadership rotation remains underway.

The leadership rotation continues in earnest. From a sector perspective, Technology dropped four spots last week and is on the cusp of falling out of the leadership group for the first time since 2019. Consumer Discretionary dropped another two spots and except for Utilities, would be in the last place in the rankings. Gaining strength this week are Communication Services and Materials. Beyond all the improving and deteriorating conditions seen at the industry group level across market cap levels, our rankings show a consistent theme: 8 of the top 10 groups (and none of the bottom 10) are small-caps and 8 of the bottom 10 groups (and none of the top 10) are large-caps.

From the desk of Willie Delwiche.

Key Takeaway: Market volatility has not interrupted rotation to new leadership. Long-term breadth remains robust, but shorter-term trends are in need of repair. Earnings and economic data continue to supply the market with positive surprises.

The Industrials sector made a big jump in our relative strength rankings this week, moving from 7th to 3rd among the large-cap sectors. Elsewhere, Consumer Discretionary continued to lose relative strength and Materials dropped out of the top five. Technology remains highly ranked (2nd overall) but on a short-term basis, it has been a market-laggard. If it cannot re-assert strength soon, its time in the leadership group could be winding down. Our industry group heat map shows overwhelming relative strength from small-cap groups (nine of the top ten & only one in the bottom ten) and widespread relative weakness in large-cap groups (none in the top ten and seven of the bottom ten). Deteriorating trends in the Technology groups...

From the desk of Willie Delwiche.

Key Takeaway: After record strength, breadth is taking a well-deserved breather.

This has the hallmarks of digestion more than divergence, especially after recording yet another breadth thrust. Re-opening optimism is running high and bond yields around the world are climbing.

With earnings and economic expectations still being revised higher, the path of least resistance for stocks remains higher even if we are starting to see a few more tripping hazards.

The Financials sector took over the top spot in our large-cap relative strength rankings even though leadership has not been as evident at the mid-cap and small-cap level. Our industry group heat map shows that while banks are improving at all cap-levels, no Financials-related industry groups are near the top of the rankings. Energy climbed into the third spot in our rankings, strength that is supported at the mid-cap & small-cap level. Technology remains in the leadership group, but...

From the desk of Willie Delwiche.

Key Takeaway: Financials & bond yields finished last week at new recovery highs.

They were joined by the most stocks ever on the NYSE + NASDAQ making new 52-week highs.

Small-cap leadership is intensifying as stocks reflect better than expected earnings and optimism about the path of economic growth.

Financials and Energy climbed in our S&P 500 relative strength rankings last week. Curiously, among small-cap sectors, Financials have been more of a laggard than a leader. With Consumer Discretionary slipping in this week’s rankings, Technology has moved back into the top spot. Small-caps dominating large-caps in our industry group relative strength rankings is not too surprising given that the top nine groups on a YTD return basis come from the small-cap index and the bottom four groups all come from the large-cap index.