ETF Sector Rotation: Q1 2026 Results and What the Rotation Into Q2 Reveals

POST UPDATED: June 14, 2026

After a strong close to 2025, the first quarter of 2026 brought a reminder that markets don’t move in a straight line — and that a rules-based rotation strategy is designed precisely for moments like this one.

Q1 2026: Navigating a Difficult Quarter

The Q1 2026 portfolio entered the quarter with $105,590 in value and held five positions: SPY, QQQ, XLF, EEM, and SLV. By quarter’s end, the portfolio stood at $102,120.59, reflecting a −3.98% return for the period.

The quarter was broadly challenging for equities. U.S. large-cap growth bore the brunt of the pressure, with QQQ declining −5.85% and SPY pulling back −4.78%. Financials (XLF) were the hardest hit among the holdings, dropping −10.22% as rate sensitivity and sector rotation away from banks weighed on the group.

Not everything moved lower. Emerging markets (EEM) remained nearly flat at +0.98%, and silver (SLV) was the standout contributor, adding +3.45% and cushioning the portfolio against steeper losses. This is exactly the kind of cross-asset diversification the strategy is built to provide — when domestic equities come under pressure, exposure to commodities and international markets can act as a meaningful offset.

 

Q1 2026 Holdings Summary

Symbol Name Entry Price Shares Open Value Close Amount Gain / Loss Weight
SPY S&P 500 ETF Trust $683.01 31 $21,118 $20,107.88 -4.78% 19.69%
QQQ Nasdaq 100 Fund $613.04 34 $21,118 $19,882.69 -5.85% 19.47%
XLF Financial Select Sector SPDR ETF $54.99 384 $21,118 $18,959.73 -10.22% 18.57%
EEM Emerging Market Fund $56.24 375 $21,118 $21,324.52 +0.98% 20.88%
SLV Silver Fund $65.87 321 $21,118 $21,845.76 +3.45% 21.39%
Total $105,590 $102,120.59 -3.98% 100.00%

What This Quarter Reinforces

A down quarter is not a strategy failure — it is part of the reality of participating in markets. What matters is how the portfolio is positioned coming out of it.

  • Rotation works both ways. The strategy limits exposure by holding only five selected positions at a time. A static portfolio would have held the same laggards with no mechanism to exit them. The model reallocates based on what is actually showing strength, not what performed well last year.
  • Diversification across asset classes earned its place. SLV and EEM together prevented a much steeper drawdown. The strategy’s willingness to move beyond domestic equities into commodities and international funds continues to smooth returns over time.
  • One down quarter does not define a strategy. Over the course of 2025, the portfolio grew from $72.8K to $105.6K. A quarter of −3.98% in a difficult market environment is a normal part of a longer compounding journey — not a reason to abandon the process.

 

Q2 2026: New Positions, Fresh Setup

Following the quarterly rebalance, the portfolio has rotated into a new set of five ETFs for Q2 2026. The starting value of $102,120 has been allocated equally across the new holdings.

Symbol Name Entry Price Shares Open Value
SPY S&P 500 ETF Trust $655.36 31 $20,424
QQQ Nasdaq 100 Fund $584.35 35 $20,424
IWM Russell 2000 ETF $249.53 82 $20,424
XLE Energy Select Sector SPDR ETF $58.97 346 $20,424
EEM Emerging Market Fund $57.23 357 $20,424
Total $102,120

Several things are worth noting about this quarter’s rotation:

  • XLF exits, XLE and IWM enter. Financials lost their place in the top five after a weak Q1. Energy (XLE) and small-caps (IWM) have emerged as areas of relative strength — a meaningful shift in market leadership worth watching.
  • EEM carries over. Emerging markets held their ground in Q1 and continued to rank among the strongest relative performers. The model keeps what is working.
  • SPY and QQQ remain. Despite a rough Q1 for both, large-cap equities still rank in the top five. Lower entry prices coming out of the pullback means this quarter’s positions start from a more favorable basis.

 

The Q2 setup reflects broad equity exposure, international diversification, and a sector tilt toward energy — positioning the portfolio to participate if the market stabilizes and leadership broadens.

 

Results for Q2 2026 will be published at quarter-end. As always, this strategy follows a rules-based process — allocations are driven by relative strength data, not forecasts or opinions.

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