With the market whipsawing these last few stretches, the only constant seems to be volatility itself. Prices are swinging hard in both directions, and while timing each turn might sound compelling, the useful question is not how to sit out the storm but which boat to be in while it moves. The Pave optimizer tracks a wide range of factors, but for this reading we focused on two: how much each sector rose and fell with the market, and how closely each sector tracked consumer spending. The three readings that stand out this week point to technology for leaning into the swings, utilities for muting them, and industrials and non-energy materials for when the concern turns to consumer.

Riding the waves

Technology sits at the high-beta end of the market. Its downside-capture score of -0.17 is the widest of the major equity sectors, above the market at -0.20 and well above utilities at -0.54, so it moves the most when the tape sells off. That amplitude is the point for anyone who reads the churn as an opportunity rather than a risk, since an overweight here is the most direct way to stay in the swings. The trade-off is built in: the sensitivity that gives you the ride is the same reason the sector leads the market lower when sentiment turns.

When we look at emerging markets on a cap-weighted basis, the same idea runs stronger still. The biggest sector by far is tech, at close to half the index, and the group leans into rallies more than US technology does with an upside-capture of +0.47, well above the US market at -0.15. That tilt traces to a few large semis, which carry the highest upside scores in the scan. Where US technology has been leading on the way down, emerging markets are geared to the way up; the same swings with the opposite lean. The catch is concentration, since much of that exposure sits in a handful of names, which sharpens both the risk and the ride.

The steady keel

Utilities are close to the opposite profile. Downside capture of -0.54 runs well below technology and below the market, earnings are among the most stable of any sector in the scan, and upside capture of -0.21 is the strongest of the defensive sectors, ahead of technology at -0.30. That asymmetry, softer on the way down while still participating on the way up, is what makes utilities a reasonable place to wait out a choppy tape without retreating fully into cash.

Below the waterline

When the specific worry is consumer spending, the scan points to the two sectors with the lowest consumption sensitivity we track: industrials at 0.36 and non-energy materials at 0.47, against a market reading of 0.79. These are the nuts and bolts of the economy, and their earnings lean less on the household than the rest of the market does. Neither will mute volatility the way utilities can, but both cut the risk that a pullback in spending is what drives the drawdown.

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By Stephen Evans, CFA

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