With the quarter coming to a close, we review movement and performance among the major sector in Q2.
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The end of June is almost upon us, which means that Q2 is coming to a close. While investors might be happy to see the market back at all-time highs, it took a wild ride to arrive where we are. Given significant movement, we wanted to highlight major sector rotation themes from the quarter.
Looking at State Street’s suite of sector ETFs seen below, we can get a view of how each major sector did throughout the quarter. Technology Select Sector SPDR Fund (XLK) was the best Q2 performer, gaining more than 20% despite falling as much as 13% at the start of April. Meanwhile, Energy fund XLE is the worst performing sector through the 25th, down more than 9% even with the sector’s positive June with rising energy commodities. One notable trend in Q2 was the outperformance of risk-on and higher momentum areas. Tech, Communication Services (XLC), Industrials (XLI), and Consumer Discretionary (XLY)—some of the most risk-on sectors—were the best performers. Meanwhile, Financials and Utilities (each top five in DALI entering Q2) were the next best sectors while laggards like Healthcare and Energy were major drags.
The performance of the major sectors mirrors much of the movement within our DALI sector rankings over the last quarter. The current top five sectors within DALI are the same five at the end of last quarter, highlighting the general stability of the market’s leaders. However, Technology did briefly fall to seventh in April before eventually returning to the top five, and it is now within one signal of moving back ahead of Utilities. Consumer Staples was the biggest DALI riser in Q2, gaining 29 signals within DALI’s sector rankings. Flight to safety during the peak of market tariff fears saw the sector move from last place to sixth before eventually falling to the eighth rank with the market returning to its risk-on posture. Basic Materials also gained 22 signals—the 2nd most of any sector—largely due to strength from metal miners. Meanwhile, the Discretionary sector lost 15 signals with small caps and homebuilders causing the brunt of the damage, dropping it behind Materials. However, it was Energy that was the quarter’s biggest loser, shedding 21 signals throughout the quarter to fall to last place in DALI. Meanwhile, Healthcare and Real Estate round out the 10th and 9th spots after losing further strength. Overall, it was a solid quarter for high relative strength sectors, which is a positive sign for the rest of the year.
