Sector rotation is one of the most reliable edges in the market. Big money does not disappear - it moves. When one theme gets crowded or extended, institutions take profits and redeploy capital into the next opportunity. The trick is spotting where that capital is flowing before the move is obvious.
The method is straightforward: rank major sector and thematic ETFs by performance across three timeframes - one week, one month, and one quarter. The quarter shows you where money has been. The week shows you where money is going right now. When those two rankings diverge, you have a rotation signal.
Relative performance: Q2 2026 so far
Each line below is rebased to 100 at the start of March. When lines cross, that is rotation happening in real time. Notice how XLK (green) spent the first three weeks below XLE (red), then the two crossed in early April and never looked back.
Full scorecard: 21 ETFs ranked
Sorted by quarter-to-date return. The signal column flags four patterns: LEADING (strong on all timeframes), EMERGING (short-term strength diverging from weak longer-term), FADING (long-term strength breaking down on shorter timeframes), and ACCELERATING (short-term momentum outpacing the trend).
| ETF | 1W | 1M | QTR |
|---|---|---|---|
| SMH | +6.6% | +40.9% | +35.3% |
| XLK | +6.4% | +23.5% | +21.3% |
| HACK | +3.2% | +12.8% | +11.6% |
| TAN | +2.4% | +7.3% | +8.9% |
| IGV | +2.7% | +13.5% | +6.1% |
| XBI | +0.1% | +4.6% | +5.7% |
| ARKK | -0.4% | +15.3% | +4.0% |
| KRE | +1.4% | +7.4% | +3.6% |
| XLY | +1.3% | +11.2% | +3.0% |
| XLRE | +0.8% | +6.4% | +1.5% |
| XLF | -1.1% | +3.3% | +0.1% |
| XLE | -6.2% | -7.0% | -0.4% |
| XLB | -0.1% | +2.6% | -1.0% |
| IYT | +4.1% | +8.3% | -1.0% |
| XLI | -0.3% | +5.9% | -1.1% |
| XLC | +0.7% | +5.0% | -1.2% |
| XLP | -0.4% | +3.3% | -3.6% |
| XLU | -3.7% | -2.5% | -4.5% |
| XHB | +1.2% | +4.0% | -7.7% |
| XLV | -0.9% | -1.3% | -7.9% |
| GDX | +7.1% | -0.1% | -13.4% |
Where money has been
The quarter leaders are all in the AI/semiconductor complex. SMH is up 35% on the quarter, XLK up 21%, HACK up 12%. This has been the dominant theme since the tariff de-escalation in early April unlocked a massive rally in chip names. The move has been broad enough that it is still not showing classic topping signals - SMH is strong on the week (+6.6%) as well as the quarter.
Where money is going now
The most interesting signals come from the rank divergences - ETFs where the one-week rank is significantly higher than the quarter rank:
- GDX (Gold Miners) jumped from quarter rank #21 to week rank #1 with a +7.1% weekly move. This is the single largest divergence in the scan. Gold miners had been selling off hard (-13.4% on the quarter) but are now showing aggressive short-term buying. Classic early rotation signal.
- IYT (Transports) moved from quarter rank #14 to week rank #4 (+4.1% this week vs -1.0% QTR). Transports are an economic bellwether - strength here suggests the market is pricing in improving economic activity.
- XHB (Homebuilders) - quarter rank #19, but gaining momentum on the short timeframe. Down 7.7% on the quarter but now bouncing. Could be early if rates are peaking.
What is fading
- XLE (Energy) - the clearest rotation OUT. Was the quarter leader through March (peaked at +11.3%) but has completely rolled over. Down 6.2% on the week, down 7.0% on the month. The chart crossover with XLK in early April was the signal.
- XLV (Healthcare) - persistent weakness across all timeframes. Down on the week, month, and quarter. No sign of a bottom yet.
- ARKK (Innovation) - had a strong month (+15.3%) but the weekly return just flipped negative (-0.4%). Watch for follow-through. If this was a momentum trade, the momentum is stalling.
- XLF (Financials) - flat on the quarter (+0.1%) and now losing ground on the week (-1.1%). Not broken, but not leading.
Key takeaway
Semis and tech are still the leaders. The rotation framework says do not leave the strong theme too early - wait for confirmation of weakness plus lower highs. SMH is not showing that yet. But the early signals in GDX, IYT, and XHB are worth watching. If those continue to show short-term strength while tech starts to stall, that is your cue to start shifting attention.
The energy-to-tech rotation that started in early April is the textbook example. XLE led for weeks, then stopped reacting well to supportive oil prices, and the relative strength shifted. By the time the chart lines crossed, the move was already underway. The same pattern will eventually play out in semis - the question is just when.