The Utilities sector was the top-performing sector in Q3 with a return of 9.4%, and is in third place YTD with a return of 25.2%. Companies that produce, generate, transmit or distribute electricity or natural gas predominantly make up the Utilities sector. Component companies include NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK), and Dominion (NYSE: D). As investors increasingly fear recession, the safe haven of utilities is gaining appeal. Read This Story: The Recession-Resistant Power of Utilities The Consumer Staples sector was next with a YTD return of 23.3%. Making up this sector are companies involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. Component stocks include Proctor & Gamble (NYSE: PG), Philip Morris International (NYSE: PM), and Coca-Cola (NYSE: KO). The Consumer Discretionary sector continued its strong performance from 2018, returning 23.2% YTD. This sector includes industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing. It is comprised of companies such as Amazon (NSDQ: AMZN), Home Depot (NYSE: HD), and Walt Disney (NYSE: DIS). The Industrial sector has been strong all year, with a YTD gain of 22.4%. Component industries include aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, and machinery. Important constituents of this sector include Boeing (NYSE: BA), 3M (NYSE: MMM), and Honeywell (NYSE: HON). Communication Services, which has only been a separate category since last year, was the final member to with a YTD gain above 20%. This sector includes diversified telecommunication services, wireless telecommunication services, media, entertainment, and interactive media & services. Components include Facebook (NSDQ: FB), Alphabet (NSDQ: GOOGL), and AT&T (NYSE: T). Financials have gained 19.4% on the year, the final sector to top the S&P 500's 18.7% YTD gain. In addition to banks, this group includes financial services firms, insurance companies, and consumer finance companies. Major companies include Berkshire Hathaway (NYSE: BRK.A, BRK.B), JPMorgan (NYSE: JPM), and Citigroup (NYSE: C). The Materials sector was unchanged in the third quarter, so its 17.0% YTD was the same as its first half gain. This sector includes companies that produce chemicals, construction materials, metals and mining, and paper and forest products. Among its largest components are DowDuPont (NYSE: DWDP) and Sherwin-Williams (NYSE: SHW). The Energy sector had a terrible Q3, but a strong Q1 keeps it out of negative territory YTD, where it has a 5.9% return. Energy is the only sector of the S&P 500 with a negative return over the past year. Some of the energy sector's biggest holdings are ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), EOG Resources (NYSE: EOG), and Schlumberger (NYSE: SLB). The Health Care sector is in last place YTD with a 5.5% gain. Health Care has been a top-performing sector for years, but has undergone a correction over the past year. This sector includes health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries. Bellwethers in the health care sector include Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE). Playing The Late-Cycle Stage If you attempt to time your investments according to the business cycle, the economy is presently in the late-cycle stage, where economic growth rates start to slow as credit tightens. Recession typically follows the late-cycle phase, and some recession indicators continue to flash. The consistent overperformers during the late-cycle are defensive and inflation-resistant sectors: the energy sector, the health care sector, and the materials sector. Paradoxically, these sectors are the only ones that have underperformed the S&P 500 YTD. They would seem to be becoming relatively better values given this recent underperformance and the present business cycle stage. The utilities and the consumer staples sectors generally outperform during the late business cycle, but they are also consistent outperformers during the recession phase that often follows. Of note, both sectors rank among the top-performing sectors YTD. For more details on the wealth-building power of utility stocks, click here now. Robert Rapier is the chief investment strategist of Utility Forecaster. |
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