Dividends stocks are a staple among many investors’ portfolio. After all, who doesn’t like additional income? Most indices continue to set new all-time highs, and while most areas of the market have joined in, many dividend stocks unfortunately have yet to follow suit. The Schwab US Dividend Equity ETF (SCHD) is up less than 2% this year even including dividends, lagging the total return of the SPDR S&P 500 ETF (SPY) by over 7%. SCHD is also 8% off its all-time highs from November of last year. Things look even more bleak looking at just the last three months, as SCHD trails the S&P 500 by nearly 10%. That number peaked at 14.5% at the end of June, which is SPY’s largest three month spread against SCHD since the fund’s inception in 2011. 

High dividend stocks usually have a defensive tilt; they are typically mature companies in established industries with lower growth prospects. Despite the correction in April, the market has been led higher by growth focused areas this year (read today’s feature for more info), making it hard for dividend stocks to keep pace with the broader market. Dividend stocks also benefit from falling interest rates, as their dividend yields become relatively more attractive to fixed income as rates drop. The market’s hope for rate cuts has dampened so far in 2025, as there hasn’t been a cut since last December. Coming into the year, there was only a 20% chance of no Fed cuts through July (Source: CME FedWatch).  Additionally, the market entirely priced out the chance of zero cuts through July at the post-Liberation Day bottom. However, the last few months have not panned out as many investors expected, as there is now a 97% chance the Fed holds rates steady through their July meeting. 

This combination of headwinds against dividend stocks is reflected in their relative strength, as SCHD holds a poor fund score of 1.80, in addition to a negative score direction of 1.75. This weakness extends to more than just domestic equities too. The average dividend fund on our Asset Class Group Scores page, including both domestic and international funds, holds a score of 3.71. While that score is in acceptable territory, it’s noticeably lower than the average global equity fund, as the All Global and International Diversified group has an average score of 4.28. In fact, the differential between the two groups of 0.57 points is the largest since early 2021.

Overall, the weight of the evidence points to dividends stocks being weaker than the broader market on average. However, select areas of strength with high yields are certainly out there for those requiring income. The NDW Yield Buy List provides several actionable names with at least a 3% yield. One example is Williams Companies (WMB), which has been a 5 or 5’er since 2022 and offers a 3.47% yield. The stock is on two consecutive buy signals and has been in a positive trend for five years. The stock is trading right above initial support at $57 to $56, with additional support at $52 and the bullish support line at $50.

Change is exciting. Subtle progress is not. While changes in leadership can be psychologically thrilling to watch (or read about for that matter,) consistent trends are the most productive environment for momentum focused strategies and will often be the “best” for your portfolio. With that in mind, today’s feature will discuss a handful of recent developments that confirm a critical relationship within all of our investment strategies, the market’s risk-on vs. risk off posture as we move into August. From a performance perspective, it would be easy to assume that because markets are at all-time highs, risk-on assets must be in control. While this ultimately is the case in our current market environment, risk-off assets can certainly have their time in the sun during strong markets. Just as recently as Q1 or this year, defensive-minded staples XLP outperformed more offensive sectors like XLY & XLK. All this to say, understanding why markets are moving higher is a key at any one point in time.

We know that offensive oriented names have been at the forefront of the recent rally. To confirm this, we can unpack a handful of relative strength (RS) developments that have occurred over the last week, both for consumer discretionary sector representative XLY. The fund reversed into X’s on a 6.5% RS chart against both consumer staples fund XLP and cash proxy MNYMKT. While it is worth nothing that neither of these specific charts are additive from a pure reversal switching standpoint, they do act as confirmation of more consistent scales, namely the 3.25% RS scale between all aforementioned representatives. Point being, consumer discretionary representatives continue to notch relative strength wins against more defensive areas of the market.

This is also evident when looking at these groups in general. The chart below details the “average” consumer staples (red) & consumer discretionary (blue) fund on the asset class group scores page. Since crossing back above the staples group to open May, the spread between the two has only widened… again signaling continued strength from discretionary options.

What about against the rest of the sectors? Below we have run a 3.25% relative strength matrix between 20 focused sector funds (11 cap weighted and 9 equal weighted.) Themes here are largely similar. While consumer discretionary options are towards the upper-middle of the matrix, other risk-on options (technology, communication services, industrials) remain littered towards the top of the matrix. Meanwhile, more risk adverse options (staples, traditionally defensive utilities) lay towards the bottom. Broader participation metrics also signal as such. (^BPECCONCYC) & (^BPECTECH) suggest more consumer cyclical & technology stocks lie on PnF buy signals than staples names. The difference in participation isn’t anything to write home about, but again… adds to the picture.

Of course, it isn’t completely realistic to completely avoid risk-off names, especially for those clients that can’t stomach some of the wilder swings offensive sectors can bring. Whether you are looking to pick strong stocks in strong sectors (risk-on) or simply trying to focus on points of technical leadership within weaker areas (risk-off) the platform has several areas you could look towards.  The buy lists break down stocks and funds into various sectors (across large, mid, small & yield focused lists) to give you options in any desired sector. For example, a client that might need exposure to defensive consumer staples names could focus on one of the 14 technically strong options flagged on the buy list.

Remember- keeping tabs on strength may not be as exciting as catching the newest trend… but is mission critical when it comes to staying on top of relative strength within your portfolio. Take today’s feature as a crash course of how to stay up to date with said strength. Use identified key relative strength relationships & matrices, broader asset allocation tools, and ultimately NDW’s stock/fund selection tools to stay ahead of the curve as we move into August.

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