With the last month of 2022 just around the corner, let’s try to summarize the year’s interim results. And let’s start with the sector dynamics of the S&P 500.
On the whole, the index has fallen by almost 16% since the beginning of the year, with its maximum drop in October reaching 3,490 points (-27.3% YTD). Only one sector showed positive dynamics – energy (+71.8% YTD). The worst sector was communications (-37.3% YTD). It is noteworthy that at the same time it is the worst result for the sector for several decades.
If we arrange the remaining sectors in descending order, we get the following picture:
– Consumer Defensive (-1.1% YTD)
– Utilities (-1.7% YTD)
– Healthcare (-3.4% YTD)
– Industrial (-4.8% YTD)
– Financial (-8.1% YTD)
– Materials (-10.3% YTD)
– Technological (-23.8% YTD)
– Real Estate (-24.8% YTD)
– Consumer cyclical (-31.5% YTD)
The picture is similar to past crises, but also very different. Traditionally, the “best” (if we can say so) performers in the non-cyclical sectors are consumer protective, health care, and utilities. Among the outsiders are consumer cyclical and communications. Consumer spending is declining (especially digital content – reports from Netflix, Take-Two, etc. confirm this). The market has been particularly brutal on “advertisers” – Google, Snapchat.
Unusual is the dynamics of the energy sector, which showed the best growth since 2007. But it should be noted that quotes of oil companies are far ahead of the growth of oil prices, which this year … showed a near-zero dynamics. The financial sector, the most cyclical sector, also has a noticeable deviation. Normally it would be at the bottom of the list, but now it is in the middle. The Fed rate hike boosted banks’ interest income, as we’ve seen in their recent statements. The main beneficiaries were regional banks with their sensitive assets (interest income takes a larger share of the revenue mix).
If we turn to Factset’s Q3 data, in general the dynamics of the sectors correlate with their profitability. More precisely, with actual profit against analysts’ forecasts. The power industry, healthcare and consumer protection sectors are still leaders (+10.2, 8.2 and 5.4% to the forecasts, respectively).
The main outsider remains communications and, interestingly, industrials and materials. Consumer cyclical only rounds out the top five. The divergence can be explained by the fact that analysts initially laid down weak forecasts for IT and real estate, due to which they managed to outperform the forecast. Soon we will talk about the dynamics of the sectors in 2023. A month left before the New Year, it’s time to prepare a strategy for 2023.