The Best Five Sectors This Week #84
Key Takeaways
- Technology led the S&P 500 with a 4.8% gain, driving overall index performance.
- The top-5 portfolio outperformed the S&P 500, rising 1.85% due to strong tech contribution.
- Communication Services surged in sector rankings, entering the top five at 13% weight and lowering the exposure to the other four sectors.
- Energy and Financials are now the weaker sectors in the top five.
Technology Leads, Communication Services Surges
For the week ending September 18, the S&P 500 ($SPX) posted a gain of 0.96%. However, sector performance was far from uniform. Technology once again led the market, surging 4.8%, followed by industrials, which gained 1%. These were the only two sectors to finish the week in positive territory. Meanwhile, Energy was the biggest laggard, down 4.2%, while Utilities fell 3.8%. The S&P 500's overall positive return highlights how influential the Technology sector is on the index’s performance.
Sector Rankings and Portfolio Composition Shifts
Mixed sector performance pushed Communication Services (XLC) into the top 5 from ninth, while Materials (XLB) fell to 8 from 5 and Industrials moved from 8 to 9.
With communication services now making up 13% of the portfolio, other sectors saw slight weight reductions—technology, for example, dropped from 59% to 53%. This adjustment reflects the impact of a larger sector entering the top five.
- (1) Technology - XLK [53%]
- (2) Energy - XLE [6%]
- (3) Health Care - XLV [12%]
- (4) Financials - XLF [16%]
- (9) Communication Services - XLC [13%]*
- (6) Real Estate - XLRE
- (7) Consumer Staples - XLP
- (5) Materials - XLB*
- (8) Industrials - XLI*
- (10) Consumer Discretionary - XLY
- (11) Utilities - XLU
Weekly RRG
Energy, Health Care, and Financials are all in the leading quadrant on the weekly Relative Rotation Graph (RRG), though Health Care and Financials are losing some relative momentum, and energy is beginning to roll over.
Technology (XLK) is inside the weakening quadrant but is curling back up, pointing toward the leading quadrant again. This rotation—from leading to weakening and back to leading—signals a strong relative uptrend for technology versus the S&P 500.
Communication Services is emerging as a sector to watch. While still low on the RS ratio scale, it has a strong heading and, combined with daily data, is overtaking materials and to move into the top five.
Daily RRG
On the daily RRG, Energy’s long tail is moving from leading into weakening, digesting its recent rise. This is pushing the weekly tail into the improving quadrant. Energy still has the highest RS-ratio reading, suggesting that there is room to stabilize and potentially return to the leading quadrant.
Communication Services and Technology are both in the leading quadrant with positive trajectories, confirming their weekly trends.
Financials and Health Care are at risk, as their tails are in the lagging quadrant and moving further into it.
Sector Highlights
Technology
The Technology sector is breaking out of a consolidation pattern, which could be interpreted as a head-and-shoulders continuation and may signal further gains. The raw relative strength line has formed a new higher low and is challenging recent highs. The RS-ratio remains well above 100 and the RS-momentum line is curling up, supporting a return to the leading quadrant on the weekly RRG.
Energy
Energy fell below its previous high, which was expected to act as support. Support remains just above 62, but it remains to be seen whether it will hold. The raw RS line appears to have bottomed and is consolidating. Both RRG lines are above 100, but more relative momentum is needed to keep Energy above this level.
Health Care
Health Care has formed a higher low on the price chart, with the last two weeks showing higher highs and higher lows. The raw RS line confirms a breakout from a few weeks ago, and the former resistance line is now acting as support. Both RRG lines remain above 100, though relative momentum has declined.
Financials
Financials dropped below its previous high, which failed to provide support. XLF now seems to have found support around 55, a level marked by previous highs. However, the relative strength line shows a clear peak against former support, now resistance, keeping XLF under pressure. The RS-momentum line is quickly approaching 100, dragging the RS-ratio line lower.
Communication Services
Communication Services was the standout performer last week. While still within its trading range on the price chart, it is moving toward the upper boundary. The raw relative strength line is showing a bottoming formation, pushing both RRG lines higher. The RS-momentum line has crossed above 100 and is now lifting the RS-ratio line as well, putting the sector in a great position to move higher in coming weeks.
Portfolio Performance
The top-5 portfolio had a strong week, rising 1.85%; almost double the S&P 500’s return. Technology drove this outperformance, contributing 2.5% to the portfolio’s gains. Materials and Health Care remained flat, while Energy and Financials made small negative contributions. As a result, the gap between our portfolio and the S&P 500 narrowed to below 7%, bringing us closer to our benchmark.
#StayAlert, -Julius
