The Best and Worst Performing Sectors in 2019
If you think back almost 12 months, you’ll remember that the markets opened the year with extreme levels of volatility.
Stocks had just finished the worst year in a decade. Then in early January, Apple cut its earnings guidance after the company had already lost over $400 billion in market capitalization. The S&P 500 and DJIA seesawed, suggesting that the lengthy bull run could come to an end.
Yet, here we are a year later — we’re wrapping up the decade with a banner year for the S&P 500. As of the market close on December 30, 2019, stocks were up 28.5% to give the index what is expected to be its second-best performance since 1998.
Winners and Losers
Today’s infographic pulls data from Finviz.com. We’ve taken their great treemap visualization of U.S. markets and augmented it to show the sectors that beat the frothy market in 2019, as well as the ones that lagged behind.
Below, we’ll highlight instances where sectors stood out as having companies that, with few exceptions, saw ubiquitously positive or negative returns.
Top Performing Sectors
Semiconductor stocks soared in 2019, despite sales expected to shrink 12% globally. Although this seems counterintuitive at first glance, the context helps here: in 2018, there was hefty correction in the market – and the future outlook for the industry has also been revised to be rosier.
2. Credit Services
In case you didn’t get the memo, the world is increasingly going cashless — and payments companies have been licking their lips. Mastercard, Visa, American Express, Capital One, and Discover were just some of the names that outperformed the S&P 500 in 2019.
3. Aerospace / Defense
The vast majority of companies in this market, including Lockheed Martin, Raytheon, and United Technologies, all beat the market in 2019. One notable and obvious exception to this is Boeing, a company that saw its stock get hammered after the Boeing 737 Max model was grounded in the wake of several high-profile crashes.
4. Electronic Equipment
Apple shareholders had a bit of a wild ride in 2018. The company had risen in value to $1.1 trillion, but then it subsequently lost over $400 billion in market capitalization by the end of the year. Interestingly, in 2019, the stock had a strong bounce back year: the stock increased 84.8% in value, making it the best-performing FAANG stock by far.
5. Diversified Machinery
Manufacturers such as Honeywell, General Electric, Cummins, and Danaher saw solid double-digit gains in 2019, despite a slowing U.S. industrial sector. For GE in particular, this was a bit of a comeback year after its stock was decimated in 2018.
Construction Materials, Medical Labs & Research, Gold, Medical Appliances, Insurance Brokers
Worst Performing Sectors
Big oil, independent oil, and many oil services companies all had a year to forget. While this is not unusual in a highly cyclical industry, what is strange is that this happened in a year where oil prices (WTI) increased 36% for the best year since 2016.
2. Wireless Communications
Growing anticipation around 5G was not enough to buoy wireless companies in 2019.
3. Foreign Banks
It’s a tough environment for European banks right now. Not only is it late in the cycle, but banks are trying to make money in an environment with negative rates and large amounts of Brexit uncertainty. The strong U.S. dollar doesn’t help much, either.
The CEO of The Gap has described U.S. tariffs as “attacks on the American consumer”, providing just another nail in the coffin to the bottom line of the retail industry. Given these additional headwinds, it’s not surprising that companies like The Gap, American Eagle, Nordstrom, Urban Outfitters, and Abercrombie & Fitch all finished the year in the red.
5. Foreign Telecoms
Continued strength of the U.S. dollar weighed on foreign telecoms, which make the majority of their revenues in other currencies.
Visualizing the Rise of the U.S. Dollar Since the 19th Century
This animated graphic shows the U.S. dollar, the world’s primary reserve currency, as a share of foreign reserves since 1900.
Visualizing the Rise of the U.S. Dollar Since the 19th Century
As the world’s reserve currency, the U.S. dollar made up 58.4% of foreign reserves held by central banks in 2022, falling near 25-year lows.
Today, emerging countries are slowly decoupling from the greenback, with foreign reserves shifting to currencies like the Chinese yuan.
At the same time, the steep appreciation of the U.S. dollar is leading countries to sell their U.S. foreign reserves to help prop up their currencies, in turn buying currencies such as the Australian and Canadian dollars to help generate higher yields.
The above animated graphic from James Eagle shows the rapid ascent of the U.S. dollar over the last century, and its gradual decline in recent years.
Dollar Dominance: A Brief History
In 1944, the U.S. dollar became the world’s reserve currency under the Bretton Woods Agreement. Over the first half of the century, the U.S. ran budget surpluses while increasing trade and economic ties with war-torn countries, expanding its influence as the world’s store of value.
Later through the 1960s, the U.S. dollar share of global foreign reserves rapidly increased as political allies stockpiled the dollar.
By 2000, dollar dominance hit a peak of 71% of global reserves. With the creation of the European Union a year earlier, countries such as China began increasing the share of euros in reserves. Between 2000 and 2005, the share of the dollar in China’s foreign exchange reserves fell by an estimated 15 percentage points.
The dollar began a long rally after the global financial crisis, which drove central banks to cut their dollar reserves to help bolster their currencies.
Fast-forward to today, and dollar reserves have fallen roughly 13 percentage points from their historical peak.
The State of the World’s Reserve Currency
In 2022, 16% of Russia’s export transactions were in yuan, up from almost nothing before the war. Brazil and Argentina have also begun adopting the Chinese currency for trade or reserve purposes. Still, the U.S. dollar makes up 80% of Brazil’s reserves.
Yet while the U.S. dollar has decreased in share of foreign reserves, it still has an immense influence in the world economy.
The majority of trade is invoiced in the U.S. dollar globally, a trend that has stayed fairly consistent over many decades. Between 1999-2019, 74% of trade in Asia was invoiced in dollars and in the Americas, it made up 96% of all invoicing.
Furthermore, almost 90% of foreign exchange transactions involve the U.S. dollar thanks to its liquidity.
However, countries are increasingly finding alternative options than the dollar. Today, Western businesses have begun settling trade with China in renminbi. Looking further ahead, digital currencies could provide options that don’t include the U.S. dollar.
Even more so, if the U.S. share of global GDP continues to shrink, the shift to a multipolar system could progress over this century.
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