Sector winners coming out of March’s 35% stock market decline
Trends
May 14, 2020
THE BRIEF
The S&P 500, the most widely used stock index in the U.S. dropped 35% in March.
- COVID Sector Winners (total returns March 18 – May 12): Energy (+54.9%), Tech (+36.9%), Healthcare (+35.2%), Materials (+33.2%), Consumer Discretionary (+30%)
THE EXPLANATION
We analyzed the returns of the S&P 500 index, a basket of stocks that represent the largest 500 companies in the US across all sectors. Within the S&P 500 are smaller indexes that track the performance of different sectors. We examined the performance of sectors of the S&P 500 (recession vs. last (2008) and here is what stands out:
Energy Sector (TOP PERFORMER during COVID vs. MEH during 2008)
- The sell-off in energy stocks was seen as overly excessive during March and as a result, had the most to gain when markets started recovering. People viewed energy stocks as undervalued.
Technology Sector (2ND PLACE during COVID vs. 4TH PLACE during 2008)
- Tech stocks have proven themselves to be resilient crash after crash. Technology has become incredibly embedded in our daily lives and a critical part of the economy.
Healthcare Sector (3RD PLACE during COVID vs. NOT SO GREAT during 2008)
- No surprise that healthcare has been performing well with the whole world racing to find a cure.
Financial Services (9TH PLACE during COVID vs. TOP PERFORMER during 2008)
- Fear and anxiety of mass business bankruptcies and the trickle effects on the financial sector remain.
THE ACTION
Several industries have regained the majority of their losses but lagging industries present a long term holding opportunity. Financial Services, Utilities, and Industrials have seen a slow recovery and are a long way from their market highs. These Exchange Traded Funds (ETF) may offer undervalued opportunities for investors.
PRO TIP: Exchange Traded Funds offer a diversified way to invest in a group of stocks or assets. These are traded exactly like stocks.
