- By Nikki Yu Gillo, CMT Rotation Into Value and Typical Gap Range XLK has consistently outpaced XLE, but the gap widens during tech rallies and narrows during energy booms. XLE […]
Rotation Into Value and Typical Gap Range
XLK has consistently outpaced XLE, but the gap widens during tech rallies and narrows during energy booms. XLE tends to catch up when investors rotate into value or if oil prices surge and has actually proven to be an effective hedge due to its slightly negative correlation to technology stocks. While not perfectly mean-reverting, the spread between XLK and XLE does oscillate offering tactical opportunities. Recent market activity in September 2025 suggests a notable rotation out of growth-oriented mega-cap tech $XLK and into value and dividend-rich sectors specifically $XLE. Note the discrepancy of the outperformance of XLK vs XLE is a wide 110% which also coincided and happened during the 2020-2021 boom only to provide outperformance next year for XLE to materially gain 60% while XLK shed 30%.
Typical Gap Range
| Period | XLK vs XLE Performance Gap |
| 2020–2021 | XLK +90% vs XLE -10% |
| 2022 (Energy Boom) | XLK -30% vs XLE +60% |
| 2023–2025 YTD | XLK +116% vs XLE +6% |
Catalysts for Energy (XLE) to Outperform Technology (XLK) in the Short Term
Key factors that could tilt the balance in favor of energy are a spike in crude oil prices, hawkish Fed policies , geopolitical risks or simply investors rotating to energy companies due to their strong cash flow generation and relative valuation. Seasonally, demand also rises in the last quarter of the year due to winter months necessitating higher demand for heating fuels.
| Weighted Rank in XLE | Company Name | Ticker | 1M Return |
| 1 | Exxon Mobil Corp | XOM | 4.03% |
| 2 | Chevron Corp | CVX | 1.91% |
| 3 | ConocoPhillips | COP | -0.04% |
| 4 | Williams Companies Inc | WMB | 10.39% |
| 5 | EOG Resources Inc | EOG | -3.01% |
| 6 | Marathon Petroleum Corp | MPC | 14.67% |
| 7 | Kinder Morgan Inc | KMI | 4.45% |
| 8 | Phillips 66 | PSX | 7.25% |
| 9 | Schlumberger Ltd | SLB | -2.09% |
| 10 | Valero Energy Corp | VLO | 19.61% |
Watch Small Caps and Mid Caps in the Energy Sector
Although we don’t see a broad-based rally in $XLE holdings against $XLK just yet, we note that the last 2 weeks has shown brisk outperformance specifically in smaller caps and mid caps in the energy space which may precede the outperformance of the sector. $HAL $APA and $EXE are starting to lead the sector.
| Market Cap Tier | Company Name | Ticker | 1M Return |
| Mid-Cap | Targa Resources Corp. | TRGP | 5.10% |
| Mid-Cap | Occidental Petroleum | OXY | 2.52% |
| Mid-Cap | EQT Corporation | EQT | 3.41% |
| Mid-Cap | Diamondback Energy | FANG | 1.90% |
| Small-Cap | Expand Energy Corp. | EXE | 9.65% |
| Mid-Cap | Devon Energy Corp. | DVN | 1.74% |
| Mid-Cap | Halliburton Co. | HAL | 11.75% |
| Mid-Cap | Coterra Energy Inc. | CTRA | -0.38% |
| Small-Cap | Texas Pacific Land Corp | TPL | 1.62% |
| Mid-Cap | APA Corporation | APA | 11.91% |
Nikki Yu Gillo, CMT is a Philippine Chapter Chair of the CMT Association. She has over 20 years of experience working in Wealth Securities Inc. and runs a private investor community called Awesome10X. She can be reached at [email protected]
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
