Leadership among ETF sectors continues to suggest that market leadership is driven by a risk-on attitude by investors. All but one of our benchmark ETFs indicate more bullishness, based on an overall increase in momentum scores. Technology is the highest-ranked sector that had an increase in momentum score over the past week, from 12 to 27. Defensive and Energy sectors continue to lag due to both an overall decline in oil prices and an appetite for risk. With the exception of Financials, all sectors have improved for the week.

Sectors: The leading Sector Benchmark ETFs exhibited shifts last week. As mentioned, Technology improved the most the past week and now leads. Financials, which led the previous week, fell to fourth place and was the only sector to decrease momentum. The spread between the highest and lowest sectors increased from 46 to 48 this past week. Telecom improved last week, but the Energy sector improved more, pulling ahead of Telecom. These two sectors, however, continue to display negative momentum. Telecom decreased its negative momentum by 2, from -23 to -21. Energy decreased momentum to the negative side by 9, going from -23 to -14.

Unlike previous weeks, there is quite a bit of organization with regard to leadership. Cyclicals such as Technology, Materials, and Industrials are near the top, while defensive sectors such as Utilities, Consumer Staples, and Telecoms are near the bottom. The only exception is Energy, which is down with oil prices. While Energy is typically cyclical, a secular downward trend in prices is providing upside for the economy.

Factors: Momentum, Growth, and High Beta are the top factors among our Factor Benchmark ETFs. This suggests bullishness of investors along with the low performance of more defensive securities, such as Low Volatility, Dividend Growth, and Yield. The only bullish factor that may buck this trend is that small-size securities are not leading among factors. The overall increase of all factors (all factors have improved their momentum values this week) also suggests bullishness. This week, there are two factors with a momentum score greater than 20 (compared to one the previous week), and the sum of the top-three ranking scores is 70 (compared to 49 the previous week). Also adding to the increase in bullish sentiment is the rise in the sum of the bottom-three momentum scores, from 2 to 15.

Global: There were significant changes in rank and overall momentum levels among the Global Benchmark ETFs. The top-ranked regions now include China, Latin America, 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, more developed regions, such as Japan, the U.S., and the U.K., are lagging, as investor sentiment continues to improve. Latin America appears to have increased the most, potentially signaling a decrease in the political uncertainty 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 have previously been undervalued due to investor anxiety. Overall, the trend for the week is an increase in appetite for risk and an overall increase in momentum.

2 Week Edge Chart 07/19/17

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