At the crux of Nasdaq Dorsey Wright research is relative strength. Knowing when one asset is in control of another, and subsequently which asset you need to look towards for investment, is mission critical when it comes to understanding a constantly evolving relative strength landscape. While no one signal will be “right” every time, zooming out to look at a wider group of changes over time can help guide your hand when it comes to making sense of broader leadership changes. There has certainly been a wide array of shifts over the last few months as markets dealt with the rise and fall (and maybe rise again?) of conflict in the Middle East. As the broader S&P 500 has now completely priced out its decline spurred on at the start of US involvement in Iran, we will take today’s report to see how different sectors have fared against two key benchmarks: the S&P 500 and cash (MNYMKT)

Before jumping in and looking at any individual RS charts, we can first take a look at absolute performance so far this year. As of 4/19/2026, markets have largely dug themselves out of the hole built up throughout the first quarter. In fact, there are only two sectors in the red YTD, that being financials and healthcare which have both struggled in 2026. Benchmark SPX has gained just over 4%, trialing seven sectors for the year. A brief aside, a wide array of sectors outperforming the benchmark can foster an overwhelmingly positive environment for trend followers. That said, energy maintains its position at the top of the pack so far this year, seeing XLE gain just over 23% from a pure performance perspective. Basic materials, industrials, real estate, utilities, consumer staples and newcomer technology fill out the rest of the pack.

Despite leading the way so far this year, energy’s recent relative strength has waned as markets rocketed off 2026 lows. While it goes without saying that further unrest on the global stage could push energy areas higher, recent de-escalation has seen XLE retreat off of its recent highs. From a relative perspective, this also saw the fund reverse down on its 3.25% & 6.5% (pictured below) RS charts against SPX, as well as a more sensitive 3.25% against (MNYMKT). All this to say, there is certainly some merit to the argument that those of you that were able to pick up exposure to energy during this most recent run-up should take some off the table. On the other hand, it also might be worth maintaining some exposure as a bit of a hedge against further unrest in the global energy supply. From a purely technical perspective, however, recent relative declines warrant we watch newfound energy exposure a bit more tightly as we not trade off highs.

Meanwhile, several other sectors have seen relative shifts against either SPX or MNYMKT over the last few weeks. To name a few, staples focused XLP and healthcare fund XLV both reversed lower on their respective RS charts against SPX as the core of the market accelertated to new all-time highs. As risk-off areas too a relative breather, other risk-on areas improved. As mentioned in today’s featured article, consumer discretionary XLY reversed back into X’s against consumer staples XLP, a tailwind for discretionary stocks as we wrap up April. Furthermore, more risk-on groups like communication services (XLC) or technology both reversed back into X’s on their 3.25% RS charts against cash, signaling a pick-up in near-term strength after this most recent exhale.

As an action point for you readers, take the recent shift towards risk-on assets as a tailwind for broader markets heading towards May. While there certainly still are geopolitical risks in play as we sit at all-time highs without a concrete peace deal in place, price action has signaled that markets are confident in further de-escalation. As always, set alerts to be notified of relative shifts as they occur on the charts.

Most portfolios are built around the S&P 500, serving as the core equity allocation for the majority of investors. As a result, evaluating the relative strength of the index is one of the most important steps in assessing the broader health of domestic equities. After a volatile start to the year, the S&P 500 has rebounded sharply over the last several weeks, pushing to new all‑time highs and materially improving its relative position versus other asset classes in the process. One of the most effective ways to gauge its is through the "Core Equity Percentile," which measures how S&P 500 funds rank relative to the other 133 areas tracked on the Asset Class Group Scores (ACGS) page. At its lowest point this year, the core percentile sat at 83%, meaning that S&P 500 funds ranked in the top fifth of all groups within ACGS. While that is still considered strong, it marked a notable departure from the readings north of 90% we had become accustomed to. Since then, the core percentile has risen precipitously to 95.8%, which is the market’s highest level since early November. Elevated readings can signal market concentration, with few areas able to beat the strength of the largest names. However, the indicator rising to high territory is still generally positive. More importantly, the improvement on the ACGS page is not occurring in isolation, as other measures of relative strength are reinforcing the same message about the core.

Long-term readers will be familiar with the relative strength relationship between the traditional cap‑weighted S&P 500 and its equal weight counterpart (SPXEWI), which we mentioned last week. On a one percent scale, both the relationship’s signals and columns have provided an indication of whether investors should favor exposure to the largest companies or to the average stock. Late last year, this chart reversed into a column of Os, indicating near-term relative strength for equal weight exposure during a period where participation broadened beyond the largest names. More recently, the relative strength chart as moved back in favor of the cap‑weighted S&P 500, reflecting renewed leadership from larger capitalization stocks. With SPX now holding both long‑term and near‑term relative strength versus SPXEWI, the largest companies are once again acting as the primary drivers of upside.

One explanation for shifts between cap weight and equal weight areas are their structural differences. Larger companies tend to cluster in growth‑oriented areas of the market, particularly technology and communication services, resulting in materially higher weights for those sectors in cap‑weighted benchmarks. A comparison of the State Street SPDR S&P 500 ETF Trust (SPY) and the Invesco S&P 500 Equal Weight ETF (RSP) illustrates this clearly. Although both funds hold the same underlying constituents, their sector exposures differ substantially. Communication Services, for example, contains the fewest number of members of any major sector within the S&P 500. Despite this, it commands one of the largest weights in the cap‑weighted index, with exposure that is 2.5 times that of the equal weight index. Conversely, Real Estate makes up 6.1% of companies in the S&P 500, but its weight in the index is less than a third of that (<2.0%) due to the comparatively lower market capitalizations of its constituents.

Over the last month, the risk-on sectors underrepresented in the equal-weight S&P 500 have been among the best performing areas of the market. For example, technology is nearly twice the weight in the cap weighted index while select sector SPDR fund XLK is up 16% in the month of April, reinforcing why cap-weighted exposure has regained leadership.

Taken together, the rebound in the S&P 500’s core percentile, the renewed strength of cap-weighted indices versus equal weight, and differences in sector composition all point to the same conclusion. Although domestic equities as a whole look strong, market strength is increasingly concentrated in the largest companies compared to previous months. As long as that alignment remains intact, the traditional cap-weighted core continues to deserve its central role in portfolios.

Daily Option Ideas for April 20, 2026