Global Relative Strength Conditions, 4/19/2018

April 19, 2018  |  Michael Reilly

U.S. Equities are still the #1 ranked Asset Class by relative strength.

Within U.S. Equities, Technology remains the #1 strongest sector, and Financials remain the #2 strongest sector on a relative strength basis. Industrials are still #3.

International Equities are the #2 ranked Asset Class. They continue to close the gap on the leader (U.S. Equities).

Within International Equities, Latin America holds the #1 position, followed by Asia-Pacific Emerging and Asia-Pacific Developed.

Six Major Asset Classes

Ranked in order of relative strength:

  1. U.S. Equities
  2. International Equities
  3. Commodities
  4. Fixed Income
  5. Cash
  6. Currencies

We always focus on the top two strongest asset classes in terms of RS (U.S. Equities and International Equities).

We then highlight the top two strongest sectors, in terms of relative strength.

U.S. Equities

Note that the strongest groups in terms of RS are not always the top groups in terms of performance.

For example, Technology and Financials (highlighted) are the two strongest sectors on a relative strength basis, yet they delivered the lowest one-month performance.

Consider the fact that most investors would look at this and think Technology and Financials are the wrong sectors to be in.  In this case, they appear to be the absolute worst.

But history, and hundreds of studies prove that investing in sectors with positive relative strength show the highest long-term returns, overall.

That’s why we use Relative Strength investing as the cornerstone to our investment selection process.  We are still very bullish on both technology and financials, most notably the Software sub-sector and the Banks sub-sector.

U.S. Sector Performance

Sector/ETF 1-Month 3-Month 6-Month 12-Month
Energy (RYE) 11.23% -3.05% 11.44% 5.03%
Basic Materials (RTM) 3.22% -3.74% 4.83% 18.32%
Utilities (RYU) 3.01% 0.81% -5.69% -1.88%
Consumer Cyclicals (RXI) 1.16% -0.47% 11.78% 20.25%
Telecom (XTL) 0.68% 3.33% 4.38% 3.25%
Consumer Staples (RHS) 0.06% -5.28% 3.54% 0.49%
Industrials (RGI) -0.06% -3.24% 6.81% 18.35%
Real Estate (EWRE) -0.43% -2.31% -7.62% -7.35%
Healthcare (RYH) -0.62% -4.19% 2.28% 15.22%
Technology (RYT) -1.84% 1.80% 12.10% 30.19%
Financials (RYF) -3.82% -4.58% 4.49% 18.84%

International Equities

The table below highlights the performance of the six sectors representing the International Asset Class.

Again, highlighted are the top two strongest sectors based on relative strength. They also happen to be the lowest performers over the last month.

International Sector Performance

Sector (Fund) 1-Month 3-Month 6-Month 12-Month
Midde East (GULF) 3.90% 3.34% 9.59% 10.47%
Eur Dev (EZU) 3.19% -1.96% 3.51% 22.02%
Latin Am. (ILF) 3.34% 2.23% 7.39% 22.39%
Africa (AFK) 0.16% -2.65% 8.93% 22.04%
Asia Pac Dev (IPAC) -1.22% -3.35% 4.19% 16.16%
Asia Pac Emrg (EEMA) -3.33% -4.49% 3.69% 26.18%
Eur Emrg (TREMX) -5.42% -6.04% 2.65% 20.75%

The top two strongest groups, in terms of relative strength, are not necessarily the top two groups in terms of comparative performance (i.e., 1-month, 6-month, etc.).

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