Last week, we highlighted the 30-year Treasury yield reaching a 19-year high and the implications for the equity risk premium (Click HERE to view). Building on that, we now examine how long-term rate moves affect equity sector performance. While shifts in the 30-year yield reflect changing growth, inflation, and policy expectations, sector responses differ—making these sensitivities critical for both macro positioning and tactical allocation.

The image below illustrates the sensitivity of each sector to a 1% weekly change in the 30-year U.S. Treasury yield, using the 11 Select Sector SPDR ETFs.

As shown in the chart, the Energy sector exhibits the highest positive sensitivity, with a beta of 0.96. This strong relationship is largely driven by the macroeconomic forces that influence long-term yields. The 30-year yield typically rises when markets anticipate stronger future economic growth and higher inflation. Energy companies are highly exposed to commodity prices—particularly oil and gas—which tend to increase alongside inflation and rising demand. As a result, higher yields often coincide with improved revenue and earnings expectations for energy firms, leading to strong positive performance relative to rate moves.

In contrast, the Utilities sector demonstrates the most negative sensitivity, with a beta of –0.50. Utilities are traditionally viewed as defensive, income-oriented investments due to their stable, regulated cash flows and relatively high dividend payouts. However, these characteristics also make them behave similarly to long-duration bonds. When interest rates rise, the present value of their future cash flows declines, and their dividend yields become less attractive relative to safer fixed-income alternatives. Additionally, utilities tend to rely heavily on debt financing, meaning that rising yields increase their cost of capital, further pressuring valuations.

From a tactical allocation perspective, investors can seek to outperform not only by overweighting sectors with favorable tailwinds, but also by underweighting those facing structural headwinds.

Given its strong positive sensitivity to rising yields, the Energy sector remains well positioned for a continued rise in yields. The Energy Select Sector SPDR ETF (XLE) is up more than 27% year-to-date, despite trading below its all-time highs. XLE maintains a strong fund score of 4.50 and a positive score direction of 2.28, indicating continued improvement in recent months. The fund also offers a dividend yield of 2.5%. Long exposure can be made here, given the normalization of the 10-week trading band and the weight of the evidence. Initial resistance is at $61, with additional resistance at $63. Initial support is at $56, with additional support at $54.

On the other hand, the Utilities sector may warrant underweight positioning if yields continue to rise. The Utilities Select Sector SPDR ETF (XLU) is up roughly 5% year-to-date, lagging the broader market by more than 4%. The fund carries a moderate score of 3.53 but a negative score direction of –1.92, signaling weakening momentum in recent months. Additionally, the fund reversed back into Os against the market earlier this month. Strong resistance can be seen between $47-$48. Initial strong support is at $44.

Following Thursday’s (5/28) action Technology ascended to the top spot within the NDW Sector Rankings – gaining four additional buy (tally) signals and overtaking Energy. Through May, the State Street Technology Select Sector ETF (XLK) has added another 17%, outperforming the S&P 500 (SPX) and the remaining ten sector SPDR funds by more than 13% (4/30/2026 – 5/28/2026). Unquestionably, leadership within the sector is still focused within semiconductors, but the broader sector’s improvement over the past couple of months has brought it from 5^th to 1^st. Additionally, the notable performance divergence within the technology sector witnessed earlier this year between semis and software, the sector’s laggard subsector, has narrowed.

Among the relative strength relationships involving broader sector representation to see a change in signal this week were the State Street Technology Select Sector ETF (XLK) versus the Invesco S&P Equal Weight Energy ETF (RSPG) and the Invesco S&P Equal Weight  Technology ETF (RSPT) versus the State Street Energy Select Sector ETF (XLE) on a 3.25% scale. XLK reversed back into Xs against RSPG following Tuesday’s (5/26) trading and returned to an RS buy signal after action on 5/27. RSPT switched back to a column of Xs and returned to an RS buy signal following Tuesday’s (5/26) action. In both cases, the RS charts had been in a column of Os briefly earlier in May and on an RS sell signal since March. It is worth noting that the 3.25% scale RS charts between XLK versus XLE is within two boxes of an RS buy signal, while the RSPT versus RSPG RS chart is within one box of an RS buy signal. The overall theme with these RS charts shows the broader sector’s superior relative strength against the now second place sector and market darling from earlier this year, energy.

Along with the broader sector RS changes for broader technology this week, what had been a laggard subsector for the broader market, software, is now showing superior RS against the leading energy subsector, oil equipment and services. The 3.25% scale RS chart of the iShares North American Tech-Software ETF (IGV) versus the iShares Oil Equipment & Services ETF (IEZ) reversed into Xs earlier this month and returned to an RS buy signal following Thursday’s (5/28) action. Prior to the recent RS signal flip, IGV had been on an RS sell signal since November 2025.

This change in relative strength for the software space has been the primary driver behind the broader technology sector’s recent ascension as IGV has been the biggest buy signal contributor to technology’s buy signal within the DALI sector rankings in the month of May. With much of the broader technology space rally to new highs and potentially residing in overbought territory, those seeking exposure are either going to look for consolidation or look to subsectors that have improved recently, like software, to provide slight diversification to potentially concentrated exposure within semis.

Featured Charts:

Portfolio View - Major Market ETFs

Call

Linde Corporation (LIN) Sep 18 $490 Call

Additional Data: 

Bid/Ask Spread: 5.02%

Delta: 60.05

Gamma: 0.63

Implied Volatility: 24.16%

Expiry Days: 112

Earnings Date: 7/31/2026

Put

Coinbase (COIN) Aug 21 $190 Put

Additional Data: 

Bid/Ask Spread: 2.74%

Delta: -43.12

Gamma: 0.60

Implied Volatility: 72.18%

Expiry Days: 84

Earnings Date: 7/30/2026

Income (Short Call Spread)

Freeport-McMoRan (FCX) Jul 70/80 Call Vertical (Short)

Additional Data: 

Bid/Ask Spread: 52.94%

Delta: -22.55

Gamma: -1.18

Implied Volatility: 51.91%

Expiry Days: 42

Earnings Date: 7/22/2026