From the desk of Willie Delwiche.

Key Takeaway: Energy and Financials looking for friends. Bonds remain under pressure, with German yields rising toward the highest level since 2019. Breadth is no longer a relative laggard.

• Energy and Financials switched spots this week but remain at the top of the relative strength rankings, with leadership evident across time frames and market cap levels. Over the past three months, no other sector is up more than 1%. The Financials sector is up 6% and Energy is up 8%.
• Our industry group heat map shows notable strength in Energy and Banks. Health Care, Technology and Telecom groups are coming under pressure.

From the desk of Willie Delwiche.

Key Takeaway: Bond yields on the rise across the curve. Hints of leadership rotation can be seen in sector work. Higher yields could support breadth improvements.

• Energy, which was near the bottom of the rankings from both a cap-weight and equal-weight basis as September began, has continued to gain strength. It has been the top performing sector on a short-term basis (as well as on a YTD basis) and has climbed into the middle of the overall rankings and is at number 2 on an equal-weight basis.
• Health Care and Real Estate have dropped in the rankings, though the industry group heat map shows there remain pockets of strength at the industry group level within the Health Care sector.

From the desk of Willie Delwiche.

Key Takeaway: Indexes caught up to and are now catching down to the median stock. Price and pessimism can fuel a snowball of volatility. The weight of the evidence argues for caution.

• Financials moved back into the top spot in this week’s rankings. It holds the top spot in the equal-weight version of the large-cap rankings as well, suggesting broad strength within the sector. Utilities & Materials saw big drops in the rankings and relative weakness in those sectors is present across various capitalization levels.
• Sector-level weakness in Utilities is confirmed in our industry group heatmap. Other areas of broad deterioration include Capital Goods, Tech Hardware, and Real Estate.

From the desk of Willie Delwiche.

Key Takeaway: Fed-fueled volatility exposes weakness beneath the surface. Breadth trends at odds with index-level resiliency. Drop-in yields and defensive sector leadership consistent with elevated risk environments.

• Last week’s volatility produced a shake-up in our relative strength rankings. Materials and Financials both saw big drops, while Technology and Communication Services surged into the lead.
• Looking beyond the cap-weighted S&P 500 sectors shows a less decisive shift in leadership - Energy & Real Estate remain strong, both at the sector level and in terms of the industry group heat map.

From the desk of Willie Delwiche.

Key Takeaway: Mixed liquidity backdrop makes rebuilding risk appetites more of a challenge. Tailwinds that have fueled cyclical strength are tapering even if the Fed is not yet ready to. Breadth on a slippery slope from digestion to deterioration to downtrend.

While the indexes themselves continue to hold up relatively well, there is evidence of deterioration that cannot be overlooked from a tactical perspective. Whether this builds into a situation that argues for more defensive positioning from a cyclical perspective remains to be seen.

Our relative strength leadership group was unchanged last week. Financials, Materials, and Energy are the leaders at the large-cap level and are also holding up well at the mid-cap and small-cap level. Our industry group heat map reflects these leadership trends. There is little evidence here that cyclical value leadership is waning in favor of resurgent cyclical growth. Defensive sectors have fared better on a short-term basis but...

From the desk of Willie Delwiche.

Key Takeaway: Investors finding themselves with too much Technology exposure. Speculative unwind occurring as neglected areas of the market make new highs. Inflation concerns are overdone in the near term but represent a new reality for the coming decade.

Cyclical value sectors remain atop the relative strength rankings, with Financials and Materials (both of which made new highs last week even as the S&P 500 overall lost ground) holding on to the top two spots. The big gainer in this week’s rankings is Consumer Staples, which climbed three spots in the relative strength rankings. Staples also finished the week at a new high. The industry group heat map shows improving conditions widespread among large-cap groups and deteriorating conditions widespread among small-cap groups. Actual leadership is pretty consistent across sizes and is consistent with the sector rankings.

From the desk of Willie Delwiche.

Key Takeaway: Stocks looking at a year two market. Stocks looking at a year of two markets. Economic surprises remain a tailwind for now but data struggling to keep up with expectations.

Cyclical value sectors remain in their leadership positions. New highs last week in Materials, Industrials & Financials helped pace the market, and rally participation with these sectors remains robust. The rotation out of leadership from the growth sectors can make it a challenging environment for passive investors. Technology, Discretionary, and Communication Services make up 50% of the market cap of the S&P 500, and the index could struggle to see sustained strength if these areas are not participating. Defensive areas like Utilities & Consumer Staples are buried at the bottom of the rankings. 

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: 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.

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...