Improved Breadth May Point To Diverse Market Leadership

Equity sectors were mixed last week, with Tech stocks under-performing for the 2nd consecutive week. Over the past couple of weeks we have seen breadth improve to

levels not seen since 2024. The number of S&P 500 stocks making new highs relative to stocks making new lows is at a 14-month high. In similar fashion, the number of S&P 500 stocks rising above their respective 200-day moving averages is at 70.4%, a number also not seen since 2024. This would indicate that there is a real possibility that sectors other than Technology may lead this year.

Over the last month, the Technology sector has given way to other equity sectors in terms of leadership. Technology isn't exactly falling apart, up more than 3% over that

time frame. However, Energy, Materials, Industrials, Consumer Staples, and Real Estate - all sectors that lagged Tech in 2025 - are out-pacing the momentum sector over the past 4 weeks. We'll see if that trend continues. When the ratio of consumer discretionary stocks to consumer staple stocks moves lower, it means investors are moving to safer areas of the equity market and a downturn in the market should be expected. Right now, the trend of discretionary stocks out-pacing staples that started in October of 2022 is in tact.

Last week the December reading for inflation (CPI) came in as expected, +0.3% for the month, and was unchanged (+2.7%) on a year-over-year basis. In December, some key

categories that have been elevated, saw some declines. Electricity, Gasoline, Meat, Poultry, Fish, & Eggs all saw declines. In addition, Vehicle Maintenance saw a large drop providing some ease to consumers. As long as inflation remains stable, the door remains open for a rate cut. Current futures show the first possible rate cut in June with an 81% probability of a 25 basis point cut. If we continue to see a stable inflation environment, that would bode well for the consumer and the economy in 2026.

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