What keeps bull markets alive is when new areas of strength arise as others begin to faulter. The end of 2025 brought plenty of movement, so today, we review recent sector changes in DALI.
Nothing is constant except change, and the stock market is no different. Like produce in the supermarket, areas rotate in and out of favor. What keeps bull markets alive is when new areas of strength arise as others begin to falter. While the 4th quarter of 2025 was productive, it did bring about several changes in sector strength. With that in mind, what sector shifts occurred in late 2025, and how did they impact DALI’s sector rankings?
Momentum strategies work best when leadership remains stable, undergoing gradual changes that allow relative strength to adapt to shifts in the market. The last year has been a productive environment for relative strength strategies, thanks in part due to the stability of market leaders. The current top three DALI sectors saw their respective SPDR sector fund deliver the three highest returns in 2025. However, Q4 of last year was somewhat underwhelming for momentum strategies, even with the State Street Technology Select Sector SPDR ETF (XLK) being the 2nd best performing sector fund.
Looking at different sectors’ returns in Q4, there’s a clear candidate behind the disruption. Healthcare was the only sector to outperform the S&P 500, exceeding it by over 9%, leaving portfolios without significant exposure at a relative disadvantage. Thankfully, market strength has been more broad-based to start the year, with five of the eleven major sectors outperforming SPX YTD. All these performances have left DALI’s sector rankings in flux. With all the recent movement, which sectors remain areas of focus?
The current top five sectors are Technology, Communication Services, Industrials, Financials, and Basic Materials, respectively. Those five were the same top five entering Q4, reflecting leadership stability over the last quarter, even with some slight shifts among the top. Meanwhile, the market’s laggards, or bottom five sectors, also remained the same five constituents. That said, we did see Healthcare climb significantly after its standout performance in Q4, rising three spots to the seventh rank.
When evaluating the strength of a group or security, NDW primarily emphasizes long-term strength. However, short-term strength can often be an indication of where strength might be headed. DALI’s rankings are based off the long-term RS buy signal tally of a group, but we can also look at the short-term strength of groups by counting the total RS column of Xs for all its representatives. Doing so provides a view into which sectors might be primed for further strengthening or weakening.
Looking at near-term strength across major sectors, there are several standouts deviating from their long-term trends. To start, the first and second ranked Technology and Communication Services sectors hold below average near-term strength, indicating a slight slowdown in the two most AI exposed sectors. However, they should continue to be points of emphasis for the time being given their constructive long-term pictures. Meanwhile, Healthcare and Basic Materials easily hold the most near-term strength after solid performances from metal companies and the broader healthcare sector. Given the two sectors’ lack of long-term strength, those hoping to ride the wave should focus on select areas of strength within the overall groups, such as representatives for metal miners (XME) or drug companies (IHE). Even with some middle of the pack standouts, the bottom ranked sectors do hold the least near-term strength while the highest ranked sectors have a higher floor of near-term strength. Portfolios should continue to follow the overall DALI sector rankings for now, but Technology and Communications are worth watching for further declines in the coming months. Meanwhile, Healthcare and Materials are worth watching for potential improvement, with certain pockets of the sectors already looking solid.
