Leadership among ETF sectors, with slight shifts in rankings, continues to suggest that market leadership is driven by a mix of influences. The trend in benchmark ETFs and the overall decrease in momentum scores continue to indicate less bullishness. Technology is the highest-ranked sector that had a meaningful increase in momentum score over the past week, from 4 to 12. 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. Investors appear modestly less enthusiastic about the leaders than the previous week.

Sectors: The leading Sector Benchmark ETFs exhibited shifts over the past week; however, Financials and Health Care continued to lead. This past week there was a decrease in Health Care’s positive momentum and an increase in Energy’s negative momentum. The spread between the two increased from 44 momentum points the previous week to 46 this past week. The most prominent shift in ranking occurred in Real Estate over the past week. The sector went from a momentum score of 9 to a score of -7. Energy and Telecom continue to exhibit negative momentum at an increasing rate from the prior week. Telecom increased its negative momentum by 11, from -12 to -23. Energy increased momentum to the negative side by 7, going from -16 to -23.

As mentioned before, 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 as well as generally defensive sectors.

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 still 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.

Factors: Momentum, Growth, and High Beta are the top factors among our Factor Benchmark ETFs this week. The advancement of Growth and High Beta might suggest less concern from investors regarding uncertainty and more willingness to be risk-on. 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—Low Volatility, Fundamental, Dividend Growth, and Yield. While the factor rankings resemble bullishness, primarily due to the advancement of Growth and High Beta, the decrease in momentum scores for most factors does signal slightly less bullishness than the previous week. This week, there is one factor with a momentum score greater than 20 (compared to zero the previous week), and the sum of the top three ranking scores is 49 (compared to 46 the previous week). Also adding to the decrease in bullish sentiment is the decline in the sum of the bottom three momentum scores, from 17 to 2. Yield declined from a momentum score of 2 to -4.

Global: There were slight changes in rank and overall momentum levels among the Global Benchmark ETFs. The top-ranked regions still 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 Japan and UK are still lagging. Due to the increase in momentum levels for Latin America, from -1 to 11, 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.

Two Week Edge Chart 07/12/2017

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