Waterfall

Market Commentary: A swift and volatile downside move was the primary action in the equity markets for the better part of the past week. The high-momentum segments of the market, those that have been exhibiting most of the recent strength, were hit the hardest. The Nasdaq 100, the domestic market leader, dropped -10.9% in just four market days. On the international front, iShares MSCI Emerging Markets (EEM) shed -10.2% and iShares FTSE/Xinhua 25 (FXI) plunged -14.5% in those same four days. Whether this marks an abrupt change in market leadership or just a temporary correction for the existing leadership remains to be seen. By the same token, the strength in the Financial Select Sector SPDR (XLF) this past week does not guarantee its woes are over.

The 10-year Treasury yield closed today at 4.27%, just slightly lower than a week ago. Meanwhile, yields continue to climb in the high-yield segment, suggesting that investors believe the odds of a recession are increasing.

Sectors: The big drop in high-momentum sectors this past week caused Technology and Energy to drop in our rankings. The defensive sectors of Utilities and Consumer Staples have now risen to the top while Telecom has replaced Financials at the bottom of our rankings. The Telecom sector is currently displaying extremely divergent results on a global basis. The US Telecom sector, as indicated in our chart, is extremely weak thanks to dismal performance from Verizon (VZ) and Sprint (S). However, the international telecom sector is behaving quite well thanks to strong showings by Vodaphone Group PLC (VOD), Vimpel Communications (VIP), and Telefonica SA (TEF).

Styles: The sell-off showed little mercy as all domestic style categories suffered this past week. There was not much change in the relative rankings, but absolute strength took a hit across the board, flipping the last five style categories to negative intermediate-trend readings.

International: More air was let out of the China market this past week, allowing us to drop the frothy label. Canada also took a big hit thanks to pullbacks in both the energy markets and the Canadian dollar. Latin America takes over the top spot in our global rankings for now, but with volatility remaining quite high, our rankings could dramatically change again. The bottom of the list has not undergone much change, with Japan and the USA continuing to occupy the bottom two slots.