Despite financial headlines proclaiming the largest market drop since the U.S. presidential election, many market segments posted improved momentum scores and price gains over the past week. World market ETFs made significant relative-strength advances by taking advantage of weakness in the U.S. dollar and domestic stock price declines.
Sectors: A slight majority of the Sector Benchmark ETFs posted momentum gains this week, most notably among the downtrodden and defensive sectors. The three sectors in the red are prime examples. Telecom and Real Estate each posted an 11-point momentum gain. It wasn’t enough to bring them out of the red, but impressive in the face of broad market losses. The third, Energy, continues to be by far the worst-performing category, but if you look closely, you can see that it reduced the magnitude of its negative momentum this week. Others posting improvements were Utilities, Consumer Staples, and Materials. Each of these climbed two spots higher in the relative-strength rankings. In the world of relative strength, there cannot be winners without losers. However, despite three sectors rising in the rankings, only one fell this past week. Financials plunged from second to eighth, passing by all three of the gaining sectors on its way down. Vanguard Financials (VFH) dropped 3.1% on Tuesday, and it is 6.4% below its March 1 peak. However, it is still up more than 18% since the election, so recent action is far from being a disaster. Still, owners should be monitoring the current pullback for signs it could turn into something worse.
Factors: None of the Factor Benchmark ETFs posted a momentum gain this past week. However, there was shuffling among the relative-strength rankings with four rising and five falling. Low Volatility and Dividend Growth climbed two spots higher, while Growth and Small Size each managed to move one rung upward. The five factors falling in the rankings were Quality, Market Cap, Fundamental, Value, and High Beta. High Beta has the distinction of being the first factor to slip into the red this cycle. Additionally, just five weeks ago, it was completing a multi-month reign over the top of the rankings. Nothing lasts forever, and sometimes when the time is up, the exit is not very graceful.
Global: All but one of the Global Benchmark ETFs gained momentum, which is quite a contrast to the complete lack of momentum gains among the factor categories. As alluded to above, the U.S. was the lone global category losing momentum. This resulted in the U.S. plunging from third to ninth and pulling World Equity lower too, since it has a U.S. weighting of about 54%. Currency fluctuations were behind most of this global shift. The U.S. dollar took a nasty spill a week ago when the Fed raised interest rates, and it dropped again on Tuesday. China has extended its stay at the top and is now joined by Emerging Markets, which climbed three spots to provide the challenge. EAFE, Latin America, and the U.K were the other global categories climbing in the rankings. Canada is on the bottom for a fourth week and remains 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.