Market conditions deteriorated this week as breadth weakened across regions and sectors. The percentage of stocks in uptrends fell. About 10% of NYSE stocks gave point-and-figure sell signals. The share of stocks above their 50-day moving averages dropped sharply.
Major indexes stayed within longer-term uptrends, but leadership narrowed and risk rose as correlations threatened to increase in a shock-driven environment. The approach stayed rule-based: tighten stops, raise some cash for flexibility, and avoid new investments while market breadth contracts.
Leadership continued to favor areas showing resilience. Large-cap technology remained a laggard, with weakening relative strength in QQQ, MAGS, and XLK. Industrials held up well with little visible impact from the conflict, supporting the firm’s largest sector weight.
Energy also strengthened, breaking out from a long consolidation alongside breakouts in Energy ETFs such as XLE and IXC, while crude moved above its recent range. Commodities remained supportive as an inflation hedge, with the US commodities index up on the month, while financials lost some momentum and private credit raised concerns in a rising-yield backdrop, including risks tied to private credit ETS …BIZD-type exposure.
Key takeaways
Breadth Deteriorates
- Market breadth weakened meaningfully during the week: the percentage of stocks in uptrends in Canada declined by about 8%, roughly 10% of NYSE stocks generated point-and-figure sell signals, and the percentage of stocks trading above their 50-day moving averages fell sharply.
Large-Cap Technology Continues to Underperform
- Large-cap technology showed ongoing relative weakness, with QQQ, MAGS, and XLK underperforming since October and MAGS trading below its 200-day moving average.
Industrials Show Strong Resilience
- Industrials remained the strongest sector, with the equal-weighted industrials index showing little impact from the start of the conflict and many companies maintaining strong relative strength.
Energy Sector Breaks Out
- Energy broke out from a long consolidation that dates back to 2014, with the US energy ETF XLE and the global energy ETF IXC both moving to multi-year highs while crude oil moved above its recent range.
Commodities Continue Their Uptrend
- The US commodities index rose about 1.9% on the month, largely driven by energy, while commodity equities broadly remained strong with nearly all trading above the 200-day moving average.
Financial Leadership Weakens
- Financials lost momentum as relative strength waned and XLF pulled back, while banks remained above longer-term moving averages and concerns increased around private credit exposures such as BIZD in a rising yield environment.
International Equities Strengthen as Market Breadth Weakens
Markets experienced a volatile week as rising Gulf tensions added uncertainty to an already changing investment environment. While major indexes have not broken their long-term trends, several internal indicators deteriorated.
The most notable development was a decline in market breadth. At the same time, international equities have continued to outperform US equities. This trend has been building for several months.
This environment highlights how market leadership can shift beneath the surface before major indexes fully reflect those changes. Although the S&P 500 has moved only modestly this month, several internal indicators suggest a more cautious backdrop.
Rising geopolitical tensions have weighed on certain areas of the market, while weaker breadth suggests investor participation is narrowing. During the week, we reviewed these developments and discussed several portfolio adjustments.
The Long-Term Bull Market Remains Intact
From a long-term perspective, the US equity market continues to trade within the secular bull market that began in late 2012. Since then, the S&P 500 has risen approximately 354% over roughly 156 months.
Recent market behaviour has been far less dramatic. Over the past several months, the S&P 500 has largely moved sideways. The index has been consolidating since October and has traded within a narrowing range since late December.
During the week, the index briefly moved below that range but recovered and closed back within it.
Importantly, the S&P 500 remains above its rising 200-day moving average. However, it has traded below its 50-day moving average for roughly two weeks, which warrants monitoring.
While the index itself appears relatively stable, major benchmarks can sometimes mask underlying shifts. Sector and individual stock behaviour often reveal changes in leadership before headline indexes do.
Large-Cap Technology Continues to Lag
Large-cap technology remains one of the areas showing relative weakness.
The QQQ ETF, which tracks the NASDAQ-100, has moved sideways and underperformed the S&P 500 since October. While it remains above its rising 200-day moving average, it has recently traded below its 50-day moving average.
Weakness is more pronounced among the largest mega-cap technology companies. The MAGS ETF, which tracks these firms, is now trading below both its 200-day moving average and a declining 50-day moving average.
This deterioration began before the recent geopolitical developments. The NASDAQ Composite peaked in October and formed a lower high in January. Since then, it has produced a series of lower highs and lower lows, confirming a downtrend.
These developments help explain the limited exposure to large-cap technology within the portfolio.
Market Breadth Deteriorates
The most significant development this week was the weakening of market breadth.
Breadth measures how broadly individual stocks participate in market movements. Healthy markets typically see widespread participation in advances, while narrowing participation can indicate weakening momentum.
Several breadth indicators deteriorated during the week.
In Canada, the percentage of stocks in uptrends declined by roughly 8%. On the NYSE, approximately 10% of stocks generated point-and-figure sell signals. Similar patterns were observed globally.
The percentage of stocks trading above their 50-day moving averages declined sharply, while the percentage above longer-term moving averages also fell, though less dramatically.
The number of stocks reaching new highs relative to those making new lows also weakened.
These developments do not necessarily signal a major market decline. Breadth contractions can persist for weeks or months. However, they often lead investors to become more cautious.
When breadth weakens, investors typically tighten stop losses, raise modest amounts of cash, and monitor where new leadership may emerge.
International Equities Show Improving Relative Performance
While the US market has largely consolidated, international equities have been showing improving relative performance.
The SPDW ETF, which tracks developed markets outside the United States, has been trending higher with a pattern of higher highs and higher lows. During March the ETF declined roughly 3%, though much of that move occurred overnight and remains within the broader trend.
European equities also pulled back during the week. The Euro Stoxx 50 has declined about 3.8% this month and is now retesting a breakout level established earlier in the year. Importantly, the index has held above its key moving averages throughout the past 18 months.
Relative performance between Europe and the United States has also begun to shift, with European equities now trading above key moving averages relative to the S&P 500.
Japan provides another example of strong international performance. After a breakout, the Japanese market advanced nearly 49% over roughly ten months. The recent pullback of about 3% represents only a modest retracement of those gains.
Other international markets, including Taiwan, South Korea, Shanghai, and Mexico, remain within trading ranges established during February. Emerging markets have shown similar patterns.
Together, these developments suggest several international markets may still be in the early stages of new bull markets.
Valuation Differences Continue to Favor International Markets
Valuations remain another factor supporting international equities.
A substantial valuation gap persists between US equities and developed markets elsewhere in the world. Historically, large valuation gaps tend to narrow over time.
Earnings revisions also support the global outlook. Earnings estimates outside the United States are trending higher for the remainder of the year.
If these trends persist, international equities could continue to show improving relative performance.
Commodities Continue to Strengthen
Commodity markets have been rising since the end of the global tightening cycle.
The US commodities index is up roughly 1.9% this month, largely driven by energy.
Gold recently corrected after becoming significantly extended above its long-term trend. At one point, gold reached approximately 121% above its 200-day moving average. After nearly two years of gains, the recent decline appears consistent with a corrective phase.
Silver experienced a sharp decline at the end of January and has since retraced roughly half of that move.
Crude oil recently broke out of a multi-week trading range, briefly retested the breakout level, and then moved higher again.
Copper has been consolidating for several months, though the longer-term outlook remains constructive.
Commodity equities also remain broadly strong, with nearly all trading above their 200-day moving averages.
Sector Leadership Continues to Shift
Sector performance remains uneven, with correlations relatively low.
Industrials have been one of the strongest sectors. The equal-weighted industrials index has shown little impact from recent geopolitical tensions. Defense companies, machinery firms, and transportation companies have remained resilient.
Energy has also strengthened following a breakout from a long consolidation period that began in 2014. Both the US energy ETF (XLE) and the global energy ETF (IXC) have moved higher.
Financials have lost some relative strength. The XLF ETF has weakened compared with earlier leadership, though banks remain above longer-term moving averages.
There are also concerns around private credit markets. Rising long-term interest rates can place pressure on credit valuations, particularly for vehicles such as BIZD.
Portfolio Positioning Reflects a More Cautious Environment
Portfolio positioning has adjusted in response to weakening breadth.
Industrials currently represent the largest sector exposure at approximately 21%. Financials now account for roughly 16%, down from about 28% several months ago.
Energy exposure has increased to approximately 13%, while materials exposure has been reduced to about 12%.
Technology remains significantly underweight at roughly 8%, compared with about 33% in the S&P 500.
Cash levels have also increased. When combined with corporate bonds and Treasury bills, defensive holdings now represent roughly 20% of the portfolio.
These adjustments reflect a more cautious environment while maintaining exposure to sectors that continue to show resilience.
Monitoring the Next Phase of the Market
Despite weakening breadth, the broader market has not yet broken down.
Market transitions often occur gradually. Breadth deterioration, sector rotation, and regional leadership shifts frequently appear before major index moves.
For now, international equities continue to show improving relative performance, commodities remain firm, and sectors such as industrials and energy continue to demonstrate resilience.
At the same time, weakness in technology and narrower market participation suggest investors should remain cautious while monitoring market developments closely.