As expected, the Federal Reserve raised interest rates a quarter-point today. This is the third hike of the past 15 months and places a range of 0.75% to 1.00% on its benchmark short-term Fed Funds rate. However, crude oil has been the primary market mover the past week. Oil has been trading for less than $49 a barrel the past four days, representing a 10% price plunge in March, and pushing the entire Energy sector into a correction.
Sectors: This week’s big story among our Sector Benchmark ETFs is located at the bottom of the rankings. Vanguard Energy (VDE) has fallen deep into the red. Its large negative momentum score is a reflection of its downtrend that began three months ago. It has dropped 11.6% in that time, putting it officially into a correction, which is defined as a decline of 10% or more. Back at the top of the list, Technology unseated Financials to acquire the top-ranked sector honors. However, if you look closely, there is a near three-way tie for first place, with Technology, Financials, and Health Care all in the running. Momentum scores take a drop after these three, with Utilities, Consumer Discretionary, and Consumer Staples defining the next tier. Real Estate had a tough week, flipping from green to red, and dropping in the rankings. It joins Telecom and Energy, becoming the third sector to slip into a negative trend.
Factors: Momentum climbed two spots to knock Quality off the top rung of the Factor Benchmark ETF rankings. Quality held that spot for only a week and still resides snuggly in second place. Market Cap and Low Volatility round out the top four factors. There is congestion across the next five categories, and the tight spread of momentum scores allowed Growth to rise three spots to fifth with little effort. Value slipped two spots lower and now sits in eighth after being at the top just two weeks ago. High Beta and Small Size, the two factors that were the primary drivers of market strength five weeks ago, are on the bottom again this week. It seems reasonable to assume that the Momentum and High Beta factors are highly correlated and should be near each other in the rankings, because they are both aggressive strategies. However, today they are at nearly opposite extremes in terms of relative strength. Additionally, they have an extremely low 0.22 one-year correlation measurement, indicating that they have little in common. What seems reasonable is not always factual.
Global: Latin America has been experiencing weakness for three weeks, but it wasn’t knocked from its top-ranked position until today. In addition to giving up the spot it held the past seven weeks, it plunged all the way to eighth in the relative-strength rankings of the Global Benchmark ETFs. China climbed two spots to fill the void created by Latin America’s fall. However, the big upside move was the Eurozone, which soared five places upward to replace the U.S. in the #2 spot. The U.S. is now part of the four-category congestion vying for third place that also includes Pacific ex-Japan, Emerging Markets, and World Equity. Canada, on the bottom for a third week, flipped from positive to negative momentum, and it is the only major global category in the red.
The following Edge Charts are market momentum snapshots. They provide a quick and easy way to help you visually get a handle on the overall state of the market. With these charts, you can assess both the relative strength and absolute strength (momentum) of more than 30 global equity market segments. Please refer to the Edge Chart User’s Guide for further explanation.
Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.