Tech is completely dominating the market. But these sectors could be poised to catch up
A quick glimpse at the sector ETFs since the March 30 low tells us what we already know. There’s outperformance, and then there’s what Technology has done versus the rest of the market over the last six weeks — complete domination. But we know one thing: it can’t last forever. What we don’t know is when the group finally sees some profit taking and how the rest of the market will respond when that happens. For this uptrend to continue, it would most likely need to morph into a slower, more consistent (even boring) trading environment, much like we saw from May–October 2025. For that to happen, we’ll need to see rotation. First, let’s take a look at an important ratio: S & P 500 vs. RSP Equal Weight S & P 500 . Despite the SPX continuing to make new highs, equal-weight performance has once again lagged, meaning the largest stocks have remained firmly in control. This is widely understood. We’ll recall that the non-tech outperformance from late 2025 through the first quarter of 2026 helped spike this ratio line, but that leadership shift quickly faded, and the ratio has rolled over once again. Now, with the RSP/SPX ratio approaching new relative lows and momentum getting close to oversold territory again, an important question emerges: is this extreme discrepancy between market-cap-weighted and equal-weight performance due for another reversal? If breadth begins to improve, it could signal that participation beneath the surface is finally broadening once again. That has yet to happen, but it may soon. The good news is that many key ETFs have built bases that are close to being triggered. Any of the other 10 sectors could stand to benefit, but three in particular are sporting potentially constructive chart formations that we’ll focus on today: XLF Financials, XLI Industrials, and XLC Communication Services. Financials: The potential bullish pattern If tech is, indeed, going to cool off soon, we’ll likely need the large, non-growth sectors to begin contributing more meaningfully. That makes XLF an important group to monitor. The XLF Financials ETF has been trying to log a potential higher low above its 50-day moving average, which could serve as the foundation for renewed relative strength. So far, the ETF has yet to respond in a meaningful way. Still, the potential cup-and-handle pattern remains in play, keeping the bullish setup intact for now. Industrials: Impending breakout XLI Industrials has been flirting with its own pattern breakout. The ETF continues to consolidate near resistance, while the recent price action still resembles a potential bullish inverse head-and-shoulders pattern, keeping the possibility of an upside resolution alive. This is an important area to watch because Industrials contain the most components of any sector within the S & P 500, making it a meaningful representation of broader participation beneath the surface. If the market is going to broaden beyond mega-cap tech leadership, seeing XLI attract renewed interest and finally break out would clearly strengthen the case for healthier breadth. Communication services: Another potential bullish breakout Rotation does not necessarily have to move entirely away from growth — it can simply shift within growth, and one area worth monitoring is Communication Services via XLC . While the ETF remains essentially flat since early September, the shorter-term setup has quietly improved over the last three months. More specifically, the pattern has started to resemble a potential bullish inverse head-and-shoulders formation, with the March low acting as the head and the recent pullbacks helping establish the right side of the structure. A move through resistance near the recent highs would help confirm that buyers are beginning to regain control. If leadership broadens beyond semiconductors and mega-cap tech, XLC could be one of the areas positioned to participate in the next phase of rotation. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
