Below are highlights from the NDW Morning Update Video for the morning of 09/03. Access the video on the NDW Morning Update Video page. 

• The Russell 200 Index (RUT) gained the most over the past day at 1.13%, followed by crude oil (CL/) at 0.88% and Emerging markets (EEM) at 0.57%. The Dow Jones (.DJIA) and the S&P 500 index (SPX) gained 0.56% and 0.45%, respectively.

• With domestic equities moving into second place in the DALI asset class rankings, a few of the indicators have shown meaningful deterioration. After reversing lower last month, the S&P 500 Ten Week Indicator (^TWSPX) has continued to decline and now sits below the 50% threshold. This suggests that fewer than half of the index’s constituents are exhibiting near-term strength, reflecting a weakening breadth backdrop beneath the market’s headline performance.

• Commodities have added 30 signals this week in the DALI asset class rankings, continuing a trend of gradual improvement. Despite the recent gains, the asset class remains firmly in third place and still trails second-ranked domestic equities by 76 signals, highlighting the sizable gap that remains before commodities can challenge for a higher ranking.

• While commodities continue to show improving relative strength, that strength has not been driven by precious metals. Over the past week, both the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV) declined by roughly 4%, highlighting a loss of momentum and suggesting that recent commodity leadership has been concentrated in other areas within the asset class.

• Yesterday’s research piece examined emerging weaknesses within the Communication Services sector, focusing on its relative performance versus Technology over the past six months. During that period, the performance spread widened to as much as 38% in favor of Technology, reaching the 99.7th percentile of historical observations.

Healthcare recently moved to the top of the DALI sector rankings for the first time in more than a decade. Not only is this the first time in more than 10 years that healthcare has reached the top of the DALI rankings, but it is also the first time since 2022 that any of the traditionally defensive sectors—utilities, consumer staples, and healthcare—have reached the top of the rankings. Leadership by a defensive sector is potentially a sign of a more risk-off posture in the market. Utilities, consumer staples, and healthcare also have relatively small weights in the S&P 500, so outperformance by these sectors could potentially mean underperformance by the cap-weighted index. So, with leadership now in healthcare, should we be concerned about weak performance from the S&P 500?

S&P 500 Sector Allocation

As of 9/2/26. Image Source: State Street

To answer this question, we looked at every time any of the defensive sectors occupied the top spot in the DALI sector rankings for more than two weeks and looked at how the S&P 500 performed over those times. Leadership by defensive sectors was not continuous in all these periods. There were times when another sector reached number one for a day or a few days, so there is some subjectivity, but these were periods when defensive sectors were the most consistent area of leadership. On the surface, the returns for the broad market during these periods are not great with an average of -0.08%. However, looking at the returns by individual period, the average is heavily skewed by large drawdowns for the S&P around the dotcom crash in the early 2000’s and global financial crisis in 2008-09. The median return is a much more respectable 1.83%.

So, with a few big outliers notwithstanding, the market performance during periods of defensive sector leadership has not been too bad. We also wondered if defensive leadership could tell us anything about the market environment more generally. To that end, we looked at every year for which we have DALI history (since 2000) and looked at the percent of time (by days) that defensive sectors spent and the top of DALI in each year. The actual proportion of time that defensive sectors spent at the top of the rankings doesn’t appear to be particularly meaningful. There have been years, like 2014, when defensive sectors were at the top of DALI for most of the year and the S&P still gained more than 10% and there have been years, like 2001, where defensive sectors were at the top of DALI for only about 3% of the time and the S&P finished the year down more than 20%.

What does appear to be material is whether a defensive sector made it to the top of DALI at all. Of the 27 years for which we have DALI history (including 2026), there have been 14 years in which a defensive sector never made it to the top spot in the rankings; in those years, the S&P 500 has posted an average return of almost 17.5%. In the years when a defensive sector did make it to the top of DALI, the average return for the S&P was -2.45%. As with the previous data, this return is skewed by some large down years, but overall,  years of no defensive leadership seem to be indicative of a stronger market.

This doesn’t mean that because healthcare now ranks at the top of the DALI, the market is going to go into a tailspin for the rest of the year – there have been years when defensive sectors led for some part of the year and the S&P still posted a respectable return. However, the years when defensive sectors are locked out of the top the rankings do appear to be the strongest years for the S&P.

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Call

BlackRock, Inc. (BLK) Nov 20 $1120 Call

Put

Lockheed Martin Corporation (LMT) November 20 $535 Put

Income

The Allstate Corporation (ALL) Oct 16 $250 Short Put