Leadership among ETF sectors continues to suggest that market leadership is driven by a mix of influences. All of our benchmark ETFs indicate less bullishness, based on an overall decrease in momentum scores. Health Care is the highest-ranked sector that had an increase in momentum score over the past week, from 28 to 35. Bearish and lagging sectors are at the bottom of the momentum ranking because investors appear to be less bullish on them—not necessarily more bearish. With the exception of Health Care, investors appear modestly less enthusiastic about the leaders than the previous week.
Sectors: The leading Sector Benchmark ETFs exhibited shifts over the past week, but as mentioned, Health Care continued to lead. This past week there was an increase in Health Care’s positive momentum and an increase in Energy’s negative momentum. The spread between the two increased from 52 momentum points the previous week to 65 this past week. Technology advanced in ranking from the middle of the Sector Edge list to right below Health Care this past week. Energy and Telecom continue to exhibit negative momentum at an increasing rate from the prior week. Telecom increased its negative momentum by 9, from -4 to -13. Energy increased momentum to the negative side by 6, going from -24 to -30.
As mentioned in a previous post, the Sector Benchmark ETF leaderboard is not highly “organized.” This means that among the leading sectors there is a mix of bullish economically sensitive sectors such as Technology, Materials, and Industrials. However, also near the top of the list are generally defensive sectors such as Utilities and Health Care. On the other hand, Energy, an economically sensitive sector, is at the bottom of the list with Consumer Discretionary, an offensive sector.
This order of sector relative strength may be explained more by special situations than by economic or market expectations. Continued fear of rising interest rates may be highlighting the yield of Utility stocks while taking the glow off Real Estate. Health Care may be benefiting from investor sentiment about pending health-care legislation, we know price wars are affecting telecom earnings, and an oil glut is holding down energy prices. That the leaders and laggards can be explained by reasons other than market or economic themes is a sign that investors have had little incentive to change their long-term expectations.
Factors: Momentum, Growth, and Low Volatility are the top factors among our Factor Benchmark ETFs this week. The advancement of Low Volatility might suggest minor concerns from investors. However, Momentum and Growth topping the Factor list suggests investor bullishness. This alignment of rank at the top of the list is reinforced by the factors at the bottom of the list, which are all classic defensive safe havens—Value, Fundamental, Yield, and High Beta. While the factor rankings resemble bullishness, primarily due to the advancement of Small-Cap, the decrease in momentum scores for all Factors does signal slightly less bullishness than the previous week. This week, there is only one factor with a momentum score greater than 20 (compared to two the previous week), and the sum of the top three ranking scores is 53 (compared to 72 the previous week). Also adding to the decrease in bullish sentiment is the decline in the sum of the bottom three momentum scores, from 24 to 7.
Global: There were slight changes in rank and overall momentum levels among the Global Benchmark ETFs. The top-ranked regions now include China, Eurozone, and Emerging Markets. This ranking continues to suggest that investors who long underweighted those regions are now directing new capital overseas to regions now believed to be economically and politically stable and growing. On the other hand, global regions such as Latin America and UK are lagging, possibly because of investor uncertainty about their political futures. Due to the increase in momentum levels for Latin America, the uncertainty may have declined in that region. This ranking may not indicate a belief that the leading regions will have the best economies going forward, but that those economies are not now in danger. Emerging Markets advanced to the third spot this past week. The increase in ranking and momentum score could suggest that uncertainty has declined over the past week in emerging-market regions.
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