Understanding which assets to focus on within each sector is valuable information- but knowing when to skip over a sector in its entirety can be the true difference maker. We explore how you can do that on the NDW platform in today's featured article

What is a more productive market? One where everything is going up, or perhaps one that is being dragged higher by a select few names? While a reasonable market participant could make a defendable argument for either environment, the true answer is…. Both. Trend following will take us anywhere strength lies, whether that sits with a wide array of names or the one leader pushing markets forward at will. Most might agree that a more comfortable market is one where participation is broad and improving, but markets can go through ups & downs in all sorts of different investment landscapes. All that said though, it can oftentimes be helpful to understand where it might be more useful to go out and pick a select few stocks rather than simply throw a dart at a list of names. After all, the success of stock picking can vary widely from asset class to asset class, or even sector to sector. Imagine throwing a dart at a list of technology names at the start of 2026 and, by simply drawing the short stick, placing your client in a software name over a semiconductor name. While the “average” technology stock has still done comparatively quite well in 2026 on the recent rebound, the broader idea in play still shines through: Knowing how to attack each respective group can pay dividends over time. We will take today’s feature to break down this idea from a sector perspective.

Before moving further, we will start broader with commentary on the market as a whole. With action yesterday (5/19), (^PTSPX) reversed back down into a column of O’s on its default chart, signaling a decrease in S&P 500 stocks trading in an overall long-term positive trend. Now sitting at 56%, just over half of the broader S&P 500 trades in above their bullish support line. While this number is still in what the NDW analyst team would consider healthy positioning, there’s no question that long-term participation has waned. While the evidence still supports the idea that the majority of SPX returns occur when ^PTSPX is above 50%, the series of lower highs gives some support to the idea that market leadership is narrowing. The easy culprit here is semiconductors, which has done the bulk of heavy lifting to push markets to all-time highs while other areas of the markets have put in (comparatively) muted positive returns. The lesson learned from this chart: market participation is still healthy but is teetering on the boarder of being a bit too concentrated to defend without a bit of hesitation.

Broader market shifts out of the way, we can utilize both cap- and equal-weighted representatives from each sector to judge the differences in focus across each sector. The chart below includes the differences in fund score between the two options, aiming to give you a better understanding of which sectors are more focused (cap weight leadership) vs. diverse (equal weight leadership). A few major themes:

• Communication Services boasts the largest difference between cap and equal weight representatives.
• Utilities sees the largest spread favoring equal weight assets, seeing RSPU best XLU in terms of its fund score by .57 as of 5/20.
• For the most part, each sector finds both cap and equal weighted representation on the same side of NDW’s “technically acceptable” 3.0 score threshold, seeing all sectors but communication services agree in terms of their score range. Other “close” sectors include Consumer Staples (2.90 vs. 2.32), Financials (2.80 vs. 1.68) and Real Estate (2.90 vs. 2.75).

Knowing who wins the intra-sector battle can be where your analysis ends…. Or just begins. From there, the next logical step in a deeper analysis would be to question where each sector leader lies in relation to other sectors. After all, knowing that health care is dominated by equal weight representation is one thing, but knowing where RSPH sits in relation to various other sectors should guide your hand in knowing if having health care exposure even makes sense in today’s leadership landscape. To do so, the image below depicts a 3.25 matrix of all 22 sector options as well as broad S&P 500 representative SPY. Through this view, we will be able to effectively compare all the sectors against each other utilizing relative price movement to formulate rankings. Some major themes:

• Energy, technology and industrials are the only areas to beat out SPY. Keep this in mind.
• Healthcare, real estate, and consumer staples litter the bottom of the matrix. While there will be points of strength within each sector, the matrix suggests you can find better elsewhere.
• Towards the middle of the matrix, financials (XLF and RSPF) earn respectively low X counts, signaling a lack of near-term strength. Keep an eye on holdings here.

Take today’s commentary as a reminder that relative strength will always attempt to find a winner between assets. Whether you are looking at two stocks or two broad market representatives, it can often be quite useful to zoom out and include those names into a more diverse universe. In doing so, you can judge whether your “winning” asset is truly a winner or simply fool’s gold hiding in plain sight.