Key Momentum Shifts

  • Energy (XLE) remains the market's strongest leadership sector, although its south-easterly trajectory suggests relative momentum continues to moderate while maintaining superior relative strength.
  • Utilities (XLU), Materials (XLB), Consumer Staples (XLP), and Real Estate (XLRE) remain firmly positioned in the Leading quadrant, highlighting continued institutional preference for sectors exhibiting both strong relative strength and positive momentum.
  • Financials (XLF) and Health Care (XLV) continue to reside in the Weakening quadrant, indicating that although both sectors still outperform the broader market on a relative basis, their momentum has begun to fade.
  • Technology (XLK) has rotated into the Improving quadrant alongside Industrials (XLI), signalling strengthening relative momentum and positioning both sectors as potential candidates to enter market leadership.
  • Communication Services (XLC) and Consumer Discretionary (XLY) remain within the Lagging quadrant despite displaying improving trajectories, suggesting downside momentum is gradually fading.
  • No sector has rotated from Leading into Lagging, reinforcing that overall market leadership remains relatively broad despite emerging momentum shifts.
  • The latest RRG continues to favour defensive and commodity-linked sectors, while growth-oriented sectors are beginning to rebuild momentum following a prolonged period of underperformance.

The latest Relative Rotation Graph (RRG) for 3 August 2026 shows US sector leadership remaining well diversified. Energy continues to dominate the market despite moderating momentum, while Utilities, Materials, Consumer Staples and Real Estate maintain their positions in the Leading quadrant. Meanwhile, Technology has joined Industrials in the Improving quadrant, suggesting growth sectors are beginning to regain momentum. Financials and Health Care have rotated into Weakening, while Communication Services and Consumer Discretionary remain in Lagging despite showing early signs of recovery. Overall, sector rotation suggests institutional investors continue favouring established leaders while selectively increasing exposure to sectors exhibiting improving momentum characteristics.

Momentum Breakdown by Quadrant

US Sector Relative Momentum Chart (at the closing price of 03/08/2026). Powered by: amibroker.com.

Leading Quadrant

  • Energy (XLE) remains the market's strongest leadership sector. Although its south-easterly trajectory indicates relative momentum continues to moderate, the sector still maintains the highest level of relative strength versus the broader market.
  • Utilities (XLU) continue to hold within the Leading quadrant. Their stable position reflects ongoing institutional demand for defensive, income-oriented companies despite only modest momentum improvement.
  • Materials (XLB) remain firmly positioned in Leading, confirming sustained relative strength following their recent improvement in momentum.
  • Consumer Staples (XLP) continue to occupy the Leading quadrant, highlighting persistent investor demand for defensive companies offering resilient earnings and stable cash flows.
  • Real Estate (XLRE) remains comfortably within Leading, maintaining above-average relative strength despite signs that momentum has begun to flatten.

Improving Quadrant

  • Technology (XLK) has rotated into the Improving quadrant, representing one of the most significant developments in the latest RRG. The move confirms improving relative momentum and suggests technology stocks could become future market leaders if current momentum continues.
  • Industrials (XLI) remain within the Improving quadrant. Their constructive north-easterly trajectory indicates strengthening relative momentum and suggests industrial and capital goods companies remain well positioned to rotate into Leading.

Weakening Quadrant

  • Financials (XLF) have rotated into the Weakening quadrant. Although the sector continues to exhibit above-average relative strength, the declining momentum suggests institutional buying has become more selective following its recent period of leadership.
  • Health Care (XLV) also resides in Weakening after previously leading the market. The sector continues to outperform on a relative basis, but weakening momentum indicates investors have become more cautious towards defensive growth companies.

Lagging Quadrant

  • Communication Services (XLC) remain within the Lagging quadrant despite continuing to curl higher. The improving trajectory suggests downside momentum is fading, although additional gains in both relative strength and momentum will be required before the sector rotates into Improving.
  • Consumer Discretionary (XLY) continues to reside within Lagging, reflecting ongoing relative underperformance. However, its recent trajectory indicates selling pressure has moderated and momentum is gradually rebuilding.

Strategic Summary

The latest Relative Rotation Graph indicates that Energy (XLE), Utilities (XLU), Materials (XLB), Consumer Staples (XLP), and Real Estate (XLRE) continue to occupy the Leading quadrant, confirming these sectors remain the market's strongest relative performers. Meanwhile, Technology (XLK) has joined Industrials (XLI) in the Improving quadrant, reinforcing the view that growth-oriented sectors are beginning to rebuild momentum and could emerge as future leaders.

At the same time, Financials (XLF) and Health Care (XLV) have moved into the Weakening quadrant as their momentum moderates, while Communication Services (XLC) and Consumer Discretionary (XLY) remain in Lagging despite displaying improving trajectories. Overall, the latest sector rotation reflects a market where leadership remains broad, defensive sectors continue to outperform, and selected growth sectors are showing increasingly constructive momentum that could support future leadership rotations.