View from the Observation Deck  

The old axiom in the stock market about selling your stocks at the close of April and then buying back in at the start of November once made some sense from a seasonality standpoint. When the U.S. was more of an industrialized economy it was common for plants and factories to close for a month or longer in the summer to retool and allow employees to vacation. The theory was that companies would conduct less commerce in that six-month span, which would likely translate into lower earnings. Today, due in large part to globalization, the world is far more interconnected and competitive, and there is less room for downtime, in our opinion.

• From 2004 through 2023, there were just three instances (2008, 2011 & 2022) in which the S&P 500 Index posted a negative total return from May through October, and the 2008 occurrence was during the financial crisis.
• The average total return for the S&P 500 Index for the May-October periods in the table was 3.37%, which is nothing to run from, in our opinion.
• Seventeen of the twenty top-performing sectors in the table posted total returns in excess of 10.00% (May-October). For comparative purposes, from 1926-2023 (98 years), the S&P 500 Index posted an average annual total return of 10.27%, according to Ibbotson & Associates/Morningstar.

Takeaway: We publish today’s table on an annual basis as a reminder to investors that not all market maxims should be taken at face value. In this case, the data presented does not support the notion that investors should “sell in May and go away”. Over the last 20 years, an investor who remained fully invested in the S&P 500 Index from May to October enjoyed an average annual total return of 3.37%, which is a significant figure when compounded. We continue to advocate that investors consider their time horizons and take risk as appropriate. For many, missing out on six months of equity market returns is a risk not worth taking, in our view.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 companies representing a specific sector.

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View from the Observation Deck

Investors directing capital into U.S. mutual funds and exchange traded funds (ETFs) continued to favor passive investing over active management for the 12-month period ended 3/31/24.

Passive mutual funds and ETFs reported estimated net inflows totaling $620.78 billion for the 12-month period ended 3/31/24, while active funds reported estimated net outflows totaling $376.91 billion over the same period. The top three active categories with net inflows over the past 12 months were Taxable Bonds, Nontraditional Equity, and Alternative, with inflows of $77.38 billion, $20.47 billion, and $11.33 billion respectively (see table above). For comparison, the top three passive categories were U.S. Equity, Taxable Bond, and International Equity, with inflows of $323.17 billion, $217.13 billion, and $76.04 billion, respectively.

Despite compelling total returns in the broader equity markets, equity mutual funds and ETFs experienced net outflows over the past 12 months, while fixed income mutual funds and ETFs saw inflows.

Combined, the active and passive equity categories experienced outflows of $40.86 billion for the 12-month period ended 3/31/24. For comparison, the Taxable and Municipal Bond categories reported net inflows totaling $294.68 billion over the same time frame. The S&P 500, S&P MidCap 400, and S&P SmallCap 600 Indices posted total returns of 29.86%, 23.29%, and 15.83%, respectively, for the 12-month period ended 3/28/24, according to data from Bloomberg. With respect to foreign equities, the MSCI World (ex U.S.) and MSCI Emerging Market Indices posted total returns of 15.18% and 7.86%, respectively, over the same time frame.

Takeaway: Passive mutual funds and ETFs saw inflows of $620.78 billion compared to outflows of $376.91 billion for active funds over the trailing 12-month period ended 3/31/24. In the table above, we observe the largest disparity occurred in the U.S. Equity category, with active shedding $276.69 billion compared to inflows of $323.17 billion for passive funds. Notably, despite compelling total returns in the broader equity markets, equity funds suffered net outflows of $40.86 billion over the trailing 12-month period. For comparison, the fixed income categories saw combined net inflows of $294.68 billion over the same time frame. To view the last time we updated this post, please click here.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. companies with a small market capitalization. The MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. 

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View from the Observation Deck
 
For today’s post, we compare the cumulative total returns of several utility and infrastructure-related indices to that of the S&P 500 Index between 10/12/22 (the start of the current bull market) and 4/5/24. Water plays a critical role in socio-economic development, the production of food and energy, and crucially, human survival itself. The United Nations reported that 2.2 billion people around the world lacked access to safely managed drinking water, and 3.5 billion did not have access to safely managed sanitation in 2022. As revealed in the chart, when it comes to an investment in infrastructure stocks, water stands out above them all. We discuss what we believe have been catalysts to growth for the companies involved in water utility, infrastructure, materials, and equipment below.

• In the U.S., an estimated 2 million people currently live without running water inside their homes. While most U.S. citizens have access to clean water and sanitation, the infrastructure that provides these services is aging. The pipe that makes up the U.S. water network is 45 years old, on average. Some of the oldest cast iron pipes still in use were put in service more than 100 years ago, according to McKinsey & Company.
  
  
• The U.S. drinking water infrastructure is comprised of 2.2 million miles of underground pipe, according to the American Society of Civil Engineers (ASCE). The ASCE noted that an estimated 6 billion gallons of treated potable water is lost through leaks in this piping infrastructure each day. In the U.S., more than 12,000 miles of water pipes were planned to be replaced by drinking water utilities in 2020. The U.S. Environmental Protection Agency (EPA) expects water-pipe replacement rates to peak in 2035, with somewhere between 16,000 to 20,000 miles of piping being replaced per year.
  
  
• Funding for updated water infrastructure has accelerated in recent years. In 2021, the U.S. government revealed legislation that designated $55 billion toward water infrastructure improvements. Fifteen billion dollars of that funding was set aside to replace each of the 9.2 million lead service lines still in use, by 2031. In November 2023, the World Bank reported that $1.37 trillion in additional investments are needed to reach the United Nation’s Sustainable Development Goal for global access to clean water and sanitation by 2030.
  
  
• The cumulative total returns of each of the indices in today’s chart were as follows: S&P 500 Index (49.00%), S&P Global Water Index (38.20%), S&P Global Infrastructure Index (23.20%), ISE Global Wind Energy Index (8.97%), S&P Global Clean Energy Index (-21.44%), and the MAC Global Solar Energy Index (-35.21%).

Takeaway: From our perspective, the results in today’s chart can be explained by the crucial role that access to clean water and proper sanitation play in developed and developing nations around the world. Globally, an estimated $1.37 trillion of additional water infrastructure investments are required to provide clean water to the 2.2 billion people currently in need of it by 2030. In the U.S., our aging water infrastructure is in dire need of repair and replacement, with 6 billion gallons of treated water being lost each day to leaks in the current framework (approximately 14%-18% of U.S. daily water usage). Additionally, population growth threatens to stress these systems even further. Given the critical nature of the water ecosystem in comparison to the other infrastructure investments shown in today’s chart, we do not find the sector’s outperformance overly surprising. While there is no way to be certain, we expect these companies will continue to benefit from the global construction and domestic modernization of water infrastructure.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P Global Water Index is comprised of approximately 50 companies from around the world that are involved in water related businesses. The Global Infrastructure Index is comprised of 75 companies from three distinct infrastructure clusters: Utilities, Transportation, and Energy. The ISE Global Wind Energy Index is a quintile-based modified capitalization weighted index tracking public companies that are active in the wind energy industry. The S&P Global Clean Energy Index is an index of approximately 100 companies involved in global clean energy-related businesses. The MAC Global Solar Energy Index tracks globally-listed public companies that specialize in providing solar energy products and services.

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Our next blog post will be April 18th.

View from the Observation Deck  

Today's blog post illustrates the wide disparities that often exist between the annual price performance of an ounce of gold bullion, silver, and the equity returns posted by mining companies. Since precious metals tend to be priced in U.S. dollars, we also included a column that tracks the relative strength of the U.S. dollar against a basket of other major currencies.

• Precious metals have historically been considered potential inflation hedges by investors. From 1926-2023, the 12-month rate of change on the Consumer Price Index (CPI) averaged 3.0%, according to data from the Bureau of Labor Statistics. It stood at 3.2% at the end of February 2024, down from its most-recent high of 9.1% set in June 2022, but up from its most recent low of 3.0% in June 2023.
• The price of gold has been trending upward. The spot price of one ounce of gold stood at a record $2,261.00 on 4/2/24, an increase of 9.13% on a year-to-date (YTD) basis according to data from Bloomberg.
• The spot price of silver also increased over the same time frame. The spot price of one ounce of silver rose by 9.86% on a YTD basis thru 4/2/24. That said, unlike gold, the spot price of silver has not recovered to its all-time high. The price of one ounce of silver stood at $26.14 on 4/2/24, 47.14% below its all-time high of $49.45 set on 1/18/80.
• In 2023, the spot price of the U.S. dollar index peaked at $107.00 on 10/3/23 before falling to $100.99 on 12/27/23. Since then, the index increased by 3.79% to $104.82 as of 4/2/23. 
• From 2009 through 2023, the Philadelphia Stock Exchange Gold & Silver Index posted a positive total return in seven of the 15 calendar years. Five of them occurred from 2016 through 2023. It is in positive territory YTD. 

Takeaway: In some ways the data presented today defied our expectations. If the CPI is down 5.9 percentage points from its most-recent high, then why is it that gold is setting record highs, silver is rebounding, and the U.S. dollar is closing in on its 2023 calendar year high? From our perspective, there are several catalysts at play here. First, many investors view the U.S. dollar, gold, silver, and other precious metals as safe havens during times of turmoil. The wars between Russia/Ukraine and Hamas/Israel, as well as terrorist attacks in the Red Sea pose geopolitical risks that may be leading investors to seek refuge in these assets. Additionally, despite recent disinflation, the CPI remains well-above the Federal Reserve’s (“Fed”) target rate of 2.0%, even increasing from 3.1% in January 2024 to 3.2% in February. Other inflation metrics reveal a similar trend. The Fed’s “Core” (excludes food and energy) and “Supercore” (services only (no goods), excluding food, energy, and housing) inflation metrics rose by 2.8% and 3.3% on a y-o-y basis in February 2024, according to Brian Wesbury, Chief Economist at First Trust Portfolios L.P. Should geopolitical risk and inflation remain elevated or worsen, we expect higher valuations will occur within these safe haven assets.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any of the projections cited will occur. The Philadelphia Stock Exchange Gold & Silver Index is a capitalization-weighted index comprised of the leading companies involved in the mining of gold and silver. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

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View from the Observation Deck

One of the most common questions we field on an ongoing basis is the following: What are your favorite sectors? Today’s blog post is one that we update on a quarterly basis to lend context to our responses. Sometimes the answer is more evident than at other times, and sometimes it only makes sense via hindsight. While the above chart does not contain yearly data, only two sectors in the S&P 500 Index have been the top-performer in back-to-back calendar years since 2005. Information Technology was the first, posting the highest total return in 2019 (+50.29%) and 2020 (43.89%). Energy was the second, posting the highest total return in 2021 (54.39%) and 2022 (65.43%), according to data from Bloomberg.

• The top-performing sectors and their total returns in Q1’24 were as follows: Communication Services (15.82%), Energy (13.69%), and Technology (12.69%). The total return for the S&P 500 Index was 10.55% over the period. The other eight sectors generated total returns ranging from 12.45% (Financials) to -0.55% (Real Estate).
• By comparison, the top-performing sectors and their total returns in Q1’23 were as follows: Technology (21.82%), Communication Services (20.50%), and Consumer Discretionary (16.05%). The worst-performing sectors for the period were: Health Care (-4.31%), Energy (-4.71%), and Financials (-5.56%).
• Advancements in Artificial Intelligence (AI) continue to be a catalyst to the S&P 500 Communication Services and Information Technology Indices in 2024. At 49.76% and 46.01%, respectively, the trailing 12-month total returns for the Communication Services and Information Technology Indices were the highest of the eleven sectors that comprise the S&P 500 Index through the end of March 2024. For comparison, the total return of the S&P 500 Index was 29.86% over the same time frame. Each of the eleven major sectors that comprise the S&P 500 Index were positive on a total return basis over the period.
• Click here to access the post featuring the top-performing sectors in Q2’22, Q3'22, Q4'22 and Q1’23.

Takeaway: As we can observe from today’s chart, the top-performing sector often varies from quarter to quarter. Of the eleven sectors that make up the S&P 500 Index, the Communication Services and Information Technology Indices boast the highest total returns on a trailing 12-month basis (49.76% and 46.01%, respectively). Even so, they have only claimed the top spot in two of the last four quarters. That said, developments in AI continue to bolster revenue expectations for these companies. On March 29, 2024, data from Bloomberg revealed that revenues for the companies that comprise the S&P 500 Technology and Communication Services Indices are forecast to grow by 9.30% and 7.32%, respectively, in 2024. The figures represent the highest year-over-year revenue growth estimate of the eleven sectors that comprise the broader S&P 500 Index. Revenue growth estimates for the S&P 500 Health Care Index, which is notably absent from today’s chart, came in third at 6.64%. Will a different sector rise to the top in the second quarter of 2024? We look forward to seeing what the data reveals.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.  

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View from the Observation Deck

Today’s charts are intended to give investors a visual perspective on where equity analysts think 
earnings are headed. The charts cover the quarterly earnings per share (EPS) for 2023 and 
Bloomberg’s quarterly estimated EPS for 2024. For comparison, we included results and estimates 
from the S&P 500 Index (“LargeCap Index”), the S&P MidCap 400 Index (“MidCap Index”) and the S&P  SmallCap 600 Index (“SmallCap Index”).

As revealed in today’s charts, the EPS of each index we tracked contracted slightly in Q2’23 before rebounding in Q3’23. Notably, the SmallCap Index was the only one of the three indices with a lower EPS in Q4’23 compared to Q1’23.

Looking ahead, earnings estimates for each of the three indices reflect strength, in our opinion.

While it is true that EPS estimates for Q1’24 reflect a decline in year-over-year earnings for the 
MidCap and SmallCap Indices, the longer-term outlook is incredibly favorable. In Q4’24, the 
LargeCap, MidCap, and SmallCap Indices are all estimated to notch their highest quarterly earnings of the data series.

Yearly EPS estimates for each of the Indices for the 2024 and 2025 calendar years and their respective totals are as follows (not in the charts): S&P 500 Index ($243.37 and $273.46); S&P MidCap 400 Index ($185.43 and $212.68); S&P SmallCap 600 Index ($91.40 and $105.58).

Annual EPS for the LargeCap Index are estimated to increase to record-highs in 2024 and 2025 
consecutively. The EPS for the MidCap and SmallCap Indices are expected to increase to their record highs in 2025.

Takeaway
In our February post on earnings and revenue growth (click here to view it), we voiced our opinion that the recent surge in the S&P 500 Index can be attributed, in part, to expected earnings growth for the companies that comprise the index. For today’s publication, we wanted to provide an alternative look at the data that informs this thought process, as well as an extended view into the mid and small- cap segments of the market. We believe that corporate earnings drive the direction of stock prices over time, especially when the major indices are trading at or near record highs. As the data shows, EPS are expected to trend higher across each of these indices over the next several quarters, with full year estimates reaching record-highs for each index in 2025. As always, these are estimates and could change. That said, we trust today’s post provides a unique perspective on what we view as a major catalyst of the recent surge in equity valuations.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.  

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View from the Observation Deck

A myriad of factors, including strong earnings growth, developments in Artificial Intelligence (AI), and expectations regarding the direction of U.S monetary policy, sent the S&P 500 Index (“Index”) surging by 9.90% on a total return basis year-to-date (YTD) through 3/20/24. Ten of the eleven sectors that comprise the Index are positive over the same period. The Index closed at a record 5,224.62 on 3/20/24, notching its 19th record high of the calendar year so far. This begs the question: where do each of the eleven sectors stand with regard to their respective all-time highs? 

As revealed by the chart above, 10 of the 11 sectors that comprise the Index were below their all-time highs as of 3/19/24. That said, four of the 11 sectors (Information Technology, Health Care, Materials, and Industrials) set new all-time highs in 2024.

•    Excluding the Industrials sector, which set its all-time high on the day we pulled this dataset, the Materials sector was closest to its all-time high (-0.28%), which was set on 3/13/24. At -24.93%, Real Estate was furthest from its all-time high, which was set on 12/31/21. Communication Services and Information Technology, the two top performing sectors in the Index on a YTD basis thru 3/20/24, stood -17.19% and -1.35%, respectively, below their all-time highs.

•    As of 3/19/24, 332 stocks in the S&P 500 Index (currently 503) had positive returns on a price-only basis in 2024, according to data from Bloomberg. Those 332 stocks account for 66.0% of the 503 holdings. For comparison, just 145 stocks in the Index finished the 2022 with positive price returns.

•    A Bloomberg survey of 21 equity strategists found that their average year-end price target for the S&P 500 Index was 4,962 as of 3/19/24, according to its own release. The highest estimate was 5,400, while the lowest was 4,200.

Takeaway: The S&P 500 Index has enjoyed remarkable returns thus far in 2024, rising to new all-time highs on 19 separate occasions (thru 3/20/24). Four of the 11 sectors that comprise the Index set record highs in 2024. In our view, the companies that comprise the S&P 500 Index have been rewarded for their persistent earnings and revenue growth, rapid implementation of new technologies (AI), and the potential for monetary policy to ease in the coming quarters. That said, the most recent Bloomberg survey of equity strategists revealed an average year-end price target of 4,962 for the S&P 500 Index (21 strategists surveyed). The figure represents a decline of 5.03% on a price-only basis from 5,224.62 where the Index stood at the close on 3/20/24. We’ll leave it to the pundits to debate the day-to-day direction of equity markets. From our perspective, investors with a long-term view should take comfort in the fact that given enough time, equity markets have never failed to produce new highs.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.  

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View from the Observation Deck 
 
In September 2018, the Telecommunications sector was renamed the Communication Services sector as part of a broad reconstitution of the S&P 500 Index. The number of constituents in this sector expanded from just a handful of telecom carriers to 22 companies today. The new members have brought more diversification to the sector via exposure to the internet, media, and entertainment industries (see subsectors in chart above). These companies were formerly members of the Information Technology and Consumer Discretionary sectors. Click here to view our last post on this topic.

As indicated in the chart above, the S&P 500 Communication Services Index (Communication Services Index) has significantly underperformed the S&P 500 Information Technology Index (Information Technology Index) and fallen short of the broader S&P 500 Index since its inception.

Of the eleven sectors that comprise the S&P 500 Index, the Communication Services Index was the worst performer in 2022, posting a total return of -39.89%. In 2023, the sector experienced a significant turnaround, posting a total return of 55.80%, second only to the Information Technology Index which boasted a total return of 57.84% during the year.

With a total return of 11.37% on a year-to-date (YTD) basis through 3/15/24, the Communication Services Index is the best performing sector so far this year. The S&P 500 Information Technology and the S&P 500 Energy Indices were the second and third-best performers with total returns of 10.87% and 9.31%, respectively, over the same period.

From a valuations and earnings perspective, the outlook for the Communication Services sector appears more optimistic than the broader market, in our opinion.

Using 2024 consensus earnings estimates, the Communication Services sector had an estimated price-to-earnings (P/E) ratio of 18.85 as of 3/15/24. For comparison, the S&P 500 Index had an estimated P/E ratio of 21.27 as of the same date.

Bloomberg's consensus 2024 earnings growth rate estimate for the Communication Services sector stood at 17.8% as of 3/15/24, tied with the Information Technology sector for the highest estimated earnings growth rate in the S&P 500 Index. For comparative purposes, the 2024 estimate for the S&P 500 Index was 9.9% as of the same date.

Takeaway: Of the eleven major sectors that comprise the S&P 500 Index, the Communication Services sector posted the highest total return (11.37%) on a YTD basis through 3/15/24. In our view, unprecedented interest in Artificial Intelligence (AI) continues to drive valuations within the sector. That said, since its inception in 2018, the Communication Services Index has underperformed both the S&P 500 Information Technology Index (also a major benefactor of surging interest in AI) and the broader S&P 500 Index. A lack of diversification could be one reason for the sector’s lagging performance. As of 3/18/24, the Communication Services Index was comprised of just 22 stocks, compared to 65 in the S&P 500 Information Technology Index. The recent performance of the Communication Services sector has been strong and could be reflective of market-topping earnings growth expectations in 2024. In our view, if those expectations are met, the sector could continue to produce outsized returns.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry. 

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View from the Observation Deck  

Today's blog post is for those investors who want to drill down below the sector level to see what is not performing well in the stock market. The S&P 500 Index was comprised of 11 sectors and 126 subsectors as of 3/8/24, according to S&P Dow Jones Indices. The 15 worst-performing subsectors in today’s chart posted total returns ranging from -5.12% (Cable & Satellite) to -24.31% (Automobile Manufacturers) over the period. Click here to view our last post on the worst performing subsectors.

• As indicated in the chart above, four of the 15 worst-performing subsectors came from the S&P 500 Index Consumer Discretionary sector, followed by two subsectors from the Communication Services, Consumer Staples, Information Technology, and Utilities sectors. Automobile Manufacturers, a subsector of the Consumer Discretionary sector was the worst performer, posting a total return of -24.31% for the period.
• Ten of the 11 sectors that comprise the S&P 500 Index were positive on a year-to-date (YTD) basis through 3/12/24. Real Estate was the only sector with a negative total return (-0.48%). The second and third-worst performers were the Utilities and Consumer Discretionary sectors, with total returns of 0.16% and 3.13%, respectively. For comparison, the S&P 500 Index posted a total return of 8.82% for the period.
• The price of one troy ounce of gold increased by 4.55% on a YTD basis through 3/12/24, according to data from Bloomberg. Even so, the Gold Index has been third-worst performing subsector over the same time frame. In our view, this highlights the potential disconnect between commodity prices and the price of the companies that make up the underlying industry.
• The most heavily weighted sector in the S&P 500 Index was Information Technology at 29.84% as of 3/8/24, according to S&P Dow Jones Indices. For comparison, the Financials sector was second highest with a weighting of 12.99%.
• Using 2024 consensus earnings estimates, the Information Technology and Energy sectors had the highest and lowest price-to-earnings (P/E) ratios at 29.12 and 12.30, respectively, as of 3/11/24. For comparison, the S&P 500 Index had a P/E ratio of 21.28 when calculated using its 2024 consensus earnings estimates as of the same date.

Takeaway: The Consumer Discretionary sector accounts for four of the fifteen worst-performing subsectors in today’s chart. That said, the sector has enjoyed a total return of 3.13% on a YTD basis through 3/12/24. In fact, Real Estate is the only sector with a negative total return over the period, down just 0.48%. For comparison, the S&P 500 Index boasts a YTD total return of 8.82%, led by Information Technology and Communication Services stocks, with total returns of 13.67% and 11.91%, respectively, over the time frame. As always, there are no guarantees, but there could be some potential deep value opportunities in this group of subsectors. For those investors who have interest, there are a growing number of packaged products, such as exchange-traded funds, that feature S&P 500 Index subsectors.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry. 

Download a PDF of this post, please click here.

View from the Observation Deck  
Today's blog post is for those investors who want to drill down below the sector level to see what is performing well in the stock market. The S&P 500 Index was comprised of 11 sectors and 126 subsectors as of 3/8/24, according to S&P Dow Jones Indices. The 15 top-performing subsectors in the chart posted total returns ranging from 39.63% (Semiconductors) to 13.83% (Metal, Glass, & Plastic Containers. Click here to view our last post on the top performing subsectors.

• As indicated in the chart above, the Consumer Discretionary and Industrial sectors each had three subsectors represented in the top 15 performers on a year-to-date basis. Information Technology and Materials each had two subsectors represented in the top 15 over the same time frame.
• With respect to the 11 major sectors that comprise the S&P 500 Index, Information Technology posted the highest total return for the period captured in the chart, increasing by 11.27%, according to data from Bloomberg. The second and third-best performers were Communication Services and Financials, with total returns of 10.86% and 8.00%, respectively. The S&P 500 Index posted a total return of 7.73% over the period.
• As of 3/8/24, the most heavily weighted sector in the S&P 500 Index was Information Technology at 29.84%, according to S&P Dow Jones Indices. For comparison, the Communication Services and Financials sectors had weightings of 8.83% and 12.99%, respectively.
• Using 2024 consensus earnings estimates, the Information Technology and Energy sectors had the highest and lowest price-to-earnings (P/E) ratios at 29.12 and 12.30, respectively, as of 3/11/24. For comparison, the S&P 500 Index had a P/E ratio of 21.28 when calculated using its 2024 consensus earnings estimates as of the same date.

Takeaway: The Information Technology, Communication Services, and Financial sectors accounted for 43.37%, 13.72%, and 13.26%, respectively, of the total return of the S&P 500 Index YTD through 2/29/24, according to data from S&P Dow Jones Indices. With a total return of 11.27%, technology stocks are the top-performer in the S&P 500 Index YTD through 3/8/24, followed closely by communication services companies (10.86%). Notably, three of the 15 subsectors in today’s chart come from the S&P 500 Industrials sector. We maintain that the sector may be reaping the benefits of renewed governmental funding via the CHIPS Act. For those investors who may have an interest, there are a growing number of packaged products, such as exchange-traded funds, that feature S&P 500 Index subsectors.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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