Key Highlights

  • Energy (XLE) remains firmly in the Leading quadrant and continues to exhibit the strongest relative strength across the US market.
  • Communication Services (XLC) remains in the Leading quadrant despite showing signs of moderating momentum.
  • Consumer Staples (XLP) has rotated into the Improving quadrant, signalling strengthening momentum and emerging leadership potential.
  • Real Estate (XLRE) remains in Improving, continuing to build relative strength and positioning itself as a potential future market leader.
  • Financials (XLF) have rotated into the Weakening quadrant, indicating that momentum has softened despite maintaining above-average relative strength.
  • Health Care (XLV) remains in Weakening, reflecting continued loss of momentum following its earlier period of leadership.
  • Technology (XLK), Materials (XLB), Consumer Discretionary (XLY), Industrials (XLI), and Utilities (XLU) continue to reside in Lagging, although several sectors are gradually stabilising.
  • The latest sector rotation suggests leadership is becoming more selective, with Consumer Staples emerging as a new recovery candidate while Financials begin to lose momentum.

The latest Relative Rotation Graph (RRG) for 21 July 2026 highlights another important shift in US sector leadership. Energy continues to dominate the Leading quadrant alongside Communication Services, while Consumer Staples has rotated into Improving, joining Real Estate as an emerging leadership candidate. Meanwhile, Financials have slipped into the Weakening quadrant, reflecting moderating momentum after a period of market leadership. Health Care also remains in Weakening, while the remaining sectors continue to occupy the Lagging quadrant despite showing varying degrees of recovery.

US Sector Relative Momentum Chart

US Sector Relative Momentum Chart (at the closing price of 21/07/2026). Powered by: amibroker.com.

Key Market Themes

Leading Quadrant (The Market Leaders)

  • Energy (XLE) remains the strongest sector on the Relative Rotation Graph. Its position deep within the Leading quadrant reflects robust relative strength and sustained momentum, confirming continued institutional demand for energy-related companies.
  • Communication Services (XLC) continues to reside in the Leading quadrant. Although its trajectory has begun to flatten slightly, the sector continues to outperform the broader market and remains one of the market's key leadership groups.

Improving Quadrant (Emerging Leaders)

  • Consumer Staples (XLP) has successfully rotated from Weakening into Improving, representing a notable recovery in relative momentum. The move suggests investors are gradually rebuilding exposure to defensive consumer companies, positioning the sector as a potential future market leader if the current trend continues.
  • Real Estate (XLRE) remains firmly positioned within the Improving quadrant, with both momentum and relative strength continuing to strengthen. Sustained improvement could allow the sector to rotate into the Leading quadrant in coming weeks.

Weakening Quadrant (Losing Momentum)

  • Financials (XLF) have rotated into the Weakening quadrant after previously leading the market. While relative strength remains above the benchmark, declining momentum indicates investor enthusiasm has moderated, suggesting the sector may enter a consolidation phase.
  • Health Care (XLV) remains in Weakening, reflecting continued deterioration in momentum despite maintaining positive relative strength. Investors remain increasingly selective toward defensive growth stocks following their earlier period of outperformance.

Lagging Quadrant (Underperformers)

  • Technology (XLK) remains in Lagging despite showing early signs of recovery. Additional improvement in relative momentum will be required before the sector can rotate into Improving.
  • Materials (XLB) also remains in Lagging, although downside momentum has eased. Continued strengthening could position the sector for a future rotation into Improving.
  • Consumer Discretionary (XLY) continues to underperform the broader market despite gradually improving momentum.
  • Industrials (XLI) remain in Lagging following recent weakness in relative performance. While downside momentum has stabilised, the sector continues to trail the broader market.
  • Utilities (XLU) also remain within Lagging but continue to recover gradually. Sustained improvement in momentum will be necessary before the sector can transition into Improving.

Strategic Summary

The latest RRG suggests that Energy (XLE) continues to dominate the US market from a momentum perspective, while Communication Services (XLC) remains an important leadership sector despite moderating momentum. A key development in the latest rotation is Consumer Staples (XLP) moving into the Improving quadrant, joining Real Estate (XLRE) as an emerging leadership candidate.

Meanwhile, Financials (XLF) have rotated into the Weakening quadrant, indicating that momentum has softened following a strong period of outperformance. Health Care (XLV) also remains in Weakening, while Technology (XLK), Materials (XLB), Consumer Discretionary (XLY), Industrials (XLI), and Utilities (XLU) continue to reside in Lagging despite showing varying degrees of stabilisation. Overall, the latest sector rotation suggests investors continue to favour sectors demonstrating strengthening relative momentum while becoming increasingly selective toward those whose leadership is beginning to fade.