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US – S&P 500 SPDR Sectors

August 9th, 2019

The S&P 500 Index plunged 3.0% on Monday, compounding the previous week’s losses (- 3.1%) as the U.S.-China trade war escalates, marking the worst single day of trading in 2019. With the 10-year Treasury note rates falling to 1.74%, one of the market’s most-trusted recession indicators—the yield curve—rang the loudest recession warning since pre-crisis inversion in 2007. As investors rushed to safe haven assets, the demand for gold and Japanese yen spiked, as well as the demand for corporate bonds and cryptocurrencies.

Every sector in the S&P 500 fell today, although Utilities and Communication Services saw moderate losses. Sectors most affected by the deteriorating market conditions were Technology ($XLK, -4.17%), Financials ($XLF, -3.33%), and Energy ($XLE, -2.98%). Notably, the S&P 500 Index has crossed into the zone between the 50-day and 200-day moving average (now 4.7% apart).

 

A Relative Rotation Graph (RRG®) is a complete top-down analysis technique. RRG® helps to analyze the relative performance of a security, index, or industry sector and determine how it is performing relative to the benchmark. We use the RRG method to monitor the relative movements and strengths of the industry sectors in real-time. The RRG® chart plots a list of selected securities on a chart that is broken into four quadrants (Improving, Leading, Weakening, and Lagging):

 

 

August 5, 2019, long-term weekly Relative Rotation Graph® pointed to the continued weakness in sector rotation with a few exceptions. Consumer Staples sector ($XLP, -4.61% for the week) remained in the Leading quadrant, although now pointing down towards Weakening.  With a similar trajectory towards Weakening, the Utilities sector ($XLU, -1.66%) just barely stayed in the Leading quadrant.

 

Communication Services, ($XLC, +3.3%) remained the top-performing sector for the past seven and the only sector showing a positive return for the period. Technology, just surpassed by Communication Services as this year’s top-performing sector (+24.6% YTD), has been residing in the Weakening quadrant for the past seven weeks.

 

Most sectors (with a notable exception of Communication Services) finished in the red for the week. The top laggards were Technology ($XLK, -8.23%, Weakening), Financials ($XLF, -6.29%, Weakening), and Consumer Discretionary ($XLY, -6.52%, Weakening).

 

The best-performing sectors based on 12-month return data were Utilities ($XLU, 14.9%, Leading), Real Estate ($XLRE, 14.8%, Weakening), and Consumer Staples ($XLP, 9.3%, Leading).  Materials ($XLB) persists in the Leading category as the only sector with less than a 45-degree angle: