In yesterday’s trading, the S&P 500 ([SPX]) notched a new all-time high, its first since January 28th. While the S&P has regained the high it reached in late January, the market landscape looks much different than it did then.
In yesterday’s trading, the S&P 500 (SPX) notched a new all-time high, its first since January 28th. Since hitting its 2026 low on March 30th, SPX has staged a blistering rally, gaining more than 10% from trough to peak and erasing a two-month decline in just over two weeks.
While the S&P has regained the high it reached in late January, the market landscape looks much different than it did then. First and foremost, international equities have overtaken domestic equities to claim the top spot in the DALI asset class rankings. The shift suggests international equities have meaningfully gained on domestic equities and our allocation to international equities should be larger than it was in January. Thus far, this has been borne out by performance as the iShares MSCI EAFE ETF (EFA) has outpaced SPX by roughly 5% year-to-date (through 4/15) and the iShares MSCI Emerging Markets ETF (EEM) leads SPX by more than 11%.
After giving an initial buy signal in March, the US Dollar Index (DX/Y) ran into resistance between $100 and $101 and fell to a sell signal in this week’s trading. The quick reversal is atypical of the dollar, which has trended well in recent years, often giving multiple consecutive signals in the same direction. But if this week’s sell signal is a sign that the dollar is going to resume the downtrend it has been in for the last year and change, it could be a continued tailwind for international equities.
Within domestic equities, the relative strength picture also looks significantly different than it did at the end of January when technology led the domestic equity sector rankings. Technology has been one of the primary drivers of SPX’s strength over the last few years. And though it remains in in overweight territory, technology’s relative strength has materially deteriorated. The magnificent seven contributed significantly to the recent rally – all but two members – (AAPL) and (TSLA) are up more than 10% since March 31. But four of the seven also trail the S&P 500 on a year-to-date basis. Meanwhile, the average technical attribute rating for technology stocks in the S&P 500 is roughly 2.6, below the acceptable 3.0 threshold.
Energy, which ranked in the bottom half of DALI in late January, now sits atop the rankings. However, energy’s leadership is inconsistent with the rally that’s taken place over the last two weeks. The spike in crude oil prices at the outset of the Iran conflict were a significant contributor to energy’s rise; but rising energy prices also contributed to weakness in the rest of the market on concerns it could lead to inflation and an economic slowdown. This month’s rally was spurred by the two-week ceasefire and a drop in crude oil prices. If the ceasefire leads to a longer-term peace agreement and crude supply recovers, it would be a major headwind for oil prices and by extension the energy sector, if it doesn’t it could drive weakness in the rest of the market. So, from that standpoint it’s not unreasonable to think that if growth sectors are to continue higher, it may be accompanied by energy losing relative strength. There have already been signs that energy could be weakening – the Energy Select Sector SPDR Fund (XLE) reversed down into Os on its market RS chart last week and its fund score has deteriorated noticeably over the last two weeks.
Energy has taken over leadership in the DALI domestic equity sector rankings and currently has a lead of almost 60 buy signals over the second-place industrials sector.
However, there have been early signs the sector is weakening. Further declines in crude prices could be a headwind for energy while also potentially benefitting growth sectors.
All of this is to say that while the S&P may be in roughly the same position it was six weeks ago, the market today looks much different than it did then. International equities have moved into first in the asset class rankings and DX/Y’s recent chart action could support its continued leadership. Meanwhile, sector leadership in the domestic equity market may be in flux. If risk assets continue to rally, it seems likely that energy could trail the broader market but it is not yet clear if technology is ready to take up the mantle once again. With earnings season underway, that question may be answered in the next few weeks, so it will be important to keep a sharp eye on any potential shifts in relative strength.
