We present to you our full-length "Weight of the Evidence" quarterly report, going into greater detail across broad asset classes as we move into Q4. Note, this has been approved for financial professionals and non-professionals alike. Download the report HERE

Momentum strategies tend to perform best in stable environments, and the last quarter saw leadership within domestic equities remain steady. Going into Q3, Communications, Financials, Industrials, Technology, and Utilities were the highest-rankings sectors in DALI. Three of those were among the top four best-performing sectors this quarter (looking at their SPDR funds), highlighting continued stability within sector leadership. The other sector to round out the top four this quarter was Consumer Discretionary, moving higher as the market continues to show a preference for risk-on areas. Meanwhile, Consumer Staples was the lone sector to decline last quarter, further demonstrating the movement away from risk-off areas.

Movement this quarter has resulted in notable relative strength changes, especially in the last several weeks. One of the biggest changes in DALI this quarter was the rise of Technology within our rankings, with the group gaining 42 signals—the most of any sector—to climb from 4th to 2nd place. The group has been the best performing sector in each of the last two quarters, with XLK gaining 37.8% over that span, outpacing the next closest sector by over 15%. The AI theme continues to be the dominant force in the market, bolstering the position of both Tech and Communications.

With risk-on and growth areas leading the way to the upside within equities, we’ve also seen a notable decline in defensive sectors. Staples and Utilities lost 33 and 29 signals from the end of Q2, respectively, which was easily the worst of any sectors. Staples and Healthcare now sit in the bottom two spots, with Staples dropping three spots in rank. Meanwhile, Utilities fell two spots to the 7th rank, placing all three defensive sectors in the bottom half in terms of strength.

Another theme this quarter was some improvement within Energy, with the sector gaining 31 signals over the last quarter. However, all the improvement within the sector has been driven by the strength of clean energy while the traditional areas of the sector lost strength over the last quarter. Meanwhile, Basic Materials were the third most improved group, gaining 27 signals as the sector continues to be buoyed by the strength of metal companies. Looking ahead to the rest of the year, the top sectors appear well-positioned to maintain their leadership given the recent market stability. Sectors in the top half of DALI maintain a tilt towards risk-on areas given the health of the market and remains areas to overweight within portfolios. However, changes will certainly occur through the end of the year, making it all the more important to stay up to date on the latest relative strength developments.

Quarter endings and beginnings are typically a good time to provide a touch point with your clients and prospects, so in recognition of the change of calendar, we wanted to give you a sample newsletter to aid you with this communication. You want to let your clients know that you are holding the reins of their portfolios and that you are holding on tight. This letter has not been FINRA approved; however, you are welcome to use the text as you like. Feel free to "slice and dice" the text to best incorporate it within your business.

Sample Client Newsletter: Q3 2025

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The third quarter is officially in the books and it was another strong quarter for stocks globally. The S&P 500 finished the quarter up almost 8%; small cap stocks outperformed their large cap counterparts as the Russell 2000 gained more than 12%, its best quarter since 2023. The advance was broad-based as every sector of the S&P finished the quarter with a gain, except for consumer staples. Technology was the top performer, followed by consumer discretionary with both sectors posting double-digit gains.

Despite the US Dollar Index recording its first positive quarter of 2025, international equities also made significant strides as the MSCI EAFE Index and the MSCI Emerging Markets Index were up 4% and 10%, respectively. Emerging Asia markets were among the strongest performers as Vietnamese stocks were up almost 30%.

After a nine-month pause, the Federal Reserve lowered interest rates in September. This rate cut was somewhat unusual as it comes with US equity indexes trading near all-time highs. The Fed typically eases monetary policy in response to economic weakness, so rate cuts often coincide with relatively weak stock markets. Since 1990, there have only been a handful of times when the Fed has cut rates when the S&P was within 1% of its all-time high. On each of those occasions, the S&P 500 was higher a year later, although stocks sometimes had a rocky ride in the short term. Expectations for lower interest rates helped push bonds higher as the Bloomberg US Aggregate Bond Index gained 2%.

The strong rally in precious metals that has been underway for most of the year continued in the third quarter as silver, platinum, and gold, were up 29%, 19%, and 16.5%, respectively.  Gold notched a series of all-time highs during the quarter, reaching $3500 for the first time and eclipsing $3800 by quarter’s end.

Domestic equities remain at the top of the asset class rankings in our Dynamic Asset Level Investing (DALI) tool, with international equities a close second. DALI provides us with a heat map of where relative strength (and weakness) resides across and within asset classes. The continued leadership by equities suggests that the market remains in a risk-on posture as we begin the final quarter of 2025.

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Please be aware that the content of this newsletter is based on the opinion of Dorsey, Wright research and may differ from the research provided by your financial advisor. This market theme letter was written by Dorsey, Wright & Associates and is provided courtesy of your advisor.

The performance numbers in this article do not reflect dividends or transaction costs.  Indexes are not available for direct investment. Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be attained.

Stocks offer growth potential but are subject to market fluctuations. Dividends are not guaranteed; companies can reduce or eliminate their dividend at any time. There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions.

The information contained herein has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs.  Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.  Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable (“information providers”).  However, such information has not been verified by Dorsey, Wright & Associates, LLC (DWA) or the information provider and DWA and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein.  DWA and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded).  Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.  Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products.  This document does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.

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Daily Option Ideas for October 2, 2025