SPDR Sector Relative Performance Deep Dive

Tickers Discussed:  All SPDR Sectors EEM

The post discusses the sector relative performance of the SPDR sectors along with Emerging Markets  versus SPY.  Timely commentary is provided to help you stay on the right side of the trade.

Relative Performance Ratio Charts

As you’ll see below I have created relative performance charts for each of the SPDR sectors along with some other risk on / risk off relationships. A relative performance chart is nothing more than dividing the price of the security in question by a benchmark.  In this case each SPDR Sector is divided by SPY.  If the ratio is rising then the security is outperforming. If the ratio is falling then the security is under performing the benchmark.  Keep in mind that a security can be rising in price but still have a falling ratio.  This shows that the benchmark is rising at a faster rate.  When you look at these ratio charts, you can see the inflection points over time. As these ratios either roll over or breakout they give you a heads up as to emerging sector rotations.  If you monitor these charts on a regular basis it should provide you with solid evidence to be long certain sectors while avoiding others.

Let’s take a look

XLB Materials

The ratio is testing support but more importantly the relative performance has been in a multi-year downtrend. A break above the downtrend line would be a place to pay closer attention and quite possibly look for long exposure. A break above the red resistance band would put this group off to the races.

XLC Communications

A break above the the blue downtrend line clears a path to some short term out – performance. A break above the red resistance band really gets it going.

XLE Energy

Lots of talk about the reflation trade and jumping on the energy trade. The relative performance is improved and threatening to break out. If you see this ratio break above the downtrend line then the group has room to run. If oil can hold $60 I think long energy can work, below and it gets iffy.  Additionally, watch the USDollar. If the $USD starts to roll over, it should juice this trade and commodities in general.

XLF Financials

Financials have been a clear winner since the breakout in October. The chart is also a great illustration of how a group can explode once the relative performance graph breaks out. Stay long financials as long as the ratio holds trend.

XLI Industrials

The poor relative performance of the industrials tells me to stay away on the long side. The ratio is actually hitting new lows. THe next time you hear a talking head telling you industrials are screaming to the upside, remember this chart.  It’s time may come, just not now.

XLK Technology

Plain and simple this is a tech -driven rally. As long as the ratio holds trend stay long.  Nothing else to say.

XLP Staples

Nice chart that illustrates the trend changes over time. In Q4 2018 everyone piled in for safety trade and the ratio did a moonshot. Then through 2019 you can see the ebbs and flows. Most recently, since October 2019, you can see market participants abandoning safety and getting offensive. If you drill down to individual names in XLP you can see them well off their highs and there were some nice shorts to be had. This is a great place to look for transitions from offensive to defensive transitions.


Another defensive sector, but one more sensitive to interest rates. You can see they really pulled the rug starting in October when the market went offensive.

XLU Utilities

Yet another defensive sector falling out of favor. If you want to drill down, pull up a chart of XLU. You’ll see price going sideways but the simple fact that the market has been ripping caused the performance ratio to drop. Just because the ratio is falling does not necessarily imply the group is a short.

XLV Healthcare

Healthcare has been a big winner on this run. Although the ration may consolidate here, if the market remains constructive, and Liz Warren does not rocket higher in the polls, I think the group grinds higher and continues to outperform the broad market

XLY Consumer Descretionary

This group has not kept pace with the rally for one simple reason, Amazon.  Amazon has a 22% weighting in this sector. If $AMZN isnt working then it is hard for XLY to work. If you want to know where XLY is going, watch AMZN.

Bringing it all together

Financials, Technology, and Healthcare sectors are leading this rally. These are the sectors that are currently seeing the relative outperformance vs SPY. Knowing this provides a good starting point for your hunt for individual names. All that said, its not to say your can’t find stocks in other sectors that will outperform the market. It just means you won’t have sector tail winds at your back.

A look at Emerging Markets

Emerging markets have been an under-performer, especially since early 2018 when the $USD went on a tear.  Now, the narrative is shifting as the EEM has an emerging breakout in relative performance. While still in the early stages, if the $USD were to roll over it would likely be a strong tailwind for $EEM assets. Keep an eye on this.  I think this is a good time for a starter position. Nothing too big, simply an anchor point. If it fails, it fails. The good point about now is that you can find a stop reasonably close by. If price advances on EEM going forward, you can pick your spots to add as long as the relative performance chart holds trend and continues higher. If the US takes a breather, I’d expect EEM to pick up the slack if world markets remain constructive. Keep an eagle’s eye on $USD / $UUP. THat will be the trigger for a fast move higher if the Dollar strength fades.




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The charts are and levels are provided as well-informed guidelines. That said, please be aware that exogenous events like surprise tariffs or other events can easily move price through support / resistance zones.

Also, set you stops according to your own risk tolerance. The ones I have provided are to be used only as a guide. The most important aspect of your stop is to honor them. Some trades work, some don’t. Honoring your stop will ensure your loss on a failed trade will be minimal.

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