Connect with us

Markets

The Top Performing S&P 500 Sectors Over the Business Cycle

Published

on

Subscribe to the Advisor Channel free mailing list for more like this

Top Performing S&P 500 Sectors Over the Business Cycle

The Top Performing S&P 500 Sectors Over the Business Cycle

This was originally posted on Advisor Channel. Sign up to the free mailing list to get beautiful visualizations on financial markets that help advisors and their clients.

The business cycle fluctuates over time, from the highs of an expansion to the lows of a recession, and each phase impacts the performance of S&P 500 sectors differently.

And though affected sectors have different levels of average performance, any given period may see the outperformance of certain sectors due to external factors, such as technological advancements or high-impact global events (i.e. global pandemics, international conflicts, etc.)

The above graphic uses data from SPDR Americas Research to show the top performing sectors through the business cycle over almost 70 years.

The Business Cycle: Methodology

The dataset is based on the Conference Board’s Leading Economic Index, which assesses U.S. economic activity. This index includes 10 economic indicators that reveal typical turning points in the business cycle covering employment, consumer expectations, and financial conditions.

Overall from December 1, 1960 to November 30, 2019, the dataset covers:

  • 7 recessions
  • 7 recoveries
  • 12 expansions
  • 11 slowdowns

Returns are shown for all of the S&P 500 sectors with the exception of the communication services sector. This is because the sector was created relatively recently in 2018 and comprises previous technology, consumer discretionary, and telecommunication stocks already covered in the dataset.

1. Recession

Broadly speaking, a recession is a period of temporary economic decline characterized by two successive quarters of falling GDP.

During this period, consumer staples was the top performing S&P 500 sector, and the only one that has averaged a positive return. Utilities and health care, traditionally defensive sectors, followed next in line. Together, these sectors averaged 10% higher returns than the overall market during six of the seven recessions.

RankS&P 500 SectorAverage Period Return
1Consumer Staples+1%
2Utilities-2%
3Health Care-3%
4Energy-4%
5Consumer Discretionary-12%
6Materials-12%
7Financials-13%
8Industrials-15%
9Technology-20%
10Real Estate-22%

Real estate has been the worst performer during recessions, given its high sensitivity to discretionary spending as both household income and business activity tend to decline.

2. Recovery

A recovery is the phase following a recession where economic activity starts to increase and the economy begins to grow again.

Real estate outperformed all other sectors with an average 39% return. As monetary policy eases and interest rates fall historically after recessions, this makes purchasing real estate more affordable, in turn supporting the sector’s performance.

RankS&P 500 SectorAverage Period Return
1Real Estate+39%
2Consumer Discretionary+33%
3Materials+29%
4Technology+28%
5Industrials+27%
6Energy+27%
7Financials+23%
8Health Care+21%
9Consumer Staples+18%
10Utilities+15%

We can see in the above table that all sectors posted double-digit returns as consumer confidence and labor market conditions improved during recoveries.

3. Expansion

In this phase of the business cycle, the economy is growing beyond recovery. It is characterized by increased economic output, employment, and income.

Interestingly, market returns were the second-best overall after recoveries. Top sectors included technology (21%), financials (19%), and real estate (18%) as economic activity climbed to its peak.

RankS&P 500 SectorAverage Period Return
1Technology+21%
2Financials+19%
3Real Estate+18%
4Consumer Discretionary+17%
5Industrials+16%
6Energy+16%
7Materials+13%
8Consumer Staples+11%
9Health Care+11%
10Utilities+8%

The utilities sector has historically seen the slowest growth across all sectors as investors tend to favor cyclical S&P 500 sectors that rise with an expanding economy.

4. Slowdown

This phase is often considered a peak in the business cycle, where growth starts to decline, but the economy is not necessarily shrinking.

With 15% average returns, health care excelled during slowdowns. Often, investors reduce their exposure to cyclical sectors as they prepare for an economic downturn, looking for more defensive investments. Similarly, consumer staples saw strong performance on average.

RankS&P 500 SectorAverage Period Return
1Health Care+15%
2Consumer Staples+15%
3Financials+14%
4Utilities+12%
5Industrials+12%
6Technology+10%
7Energy+9%
8Materials+7%
9Consumer Discretionary+6%
10Real Estate+2%

Just as real estate saw a steep drop-off during recessions, it witnessed the lowest relative returns when the economy slows and costs tend to increase.

The Case for Diversification

The above data highlights how having a diversified portfolio of investments can help reduce sector-specific risk given the distinct performance trends of individual sectors over the business cycle.

Click for Comments

Markets

Ranked: Top 10 Single-Day Market Cap Gains

Nvidia broke the record for the largest single-day market cap gains after adding nearly $250B on Feb. 22, 2024.

Published

on

The 10 Biggest Single-Day Market Cap Gains

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Since the COVID-19 pandemic, U.S. tech stocks have led in terms of market cap gains, sometimes boosting their valuations by hundreds of billions of dollars in a single day.

In this graphic, we’ve ranked the largest single-day gains ever recorded, using data from Bloomberg.

Top 10 List

The top 10 list includes just 5 companies, and all are based in the U.S.

RankDateCompanySingle-day
Market Cap Gain
(USD billions)
1Feb 22, 2024NVIDIA$247.0
2Feb 2, 2024Meta$196.8
3Nov 10, 2022Apple$190.9
4Feb 4, 2022Amazon$190.8
5May 25, 2023NVIDIA$184.1
6Jan 28, 2022Apple$178.9
7Jul 31, 2020Apple$169.0
8Oct 28, 2022Apple$150.5
9Mar 13, 2020Microsoft$150.4
10Apr 26, 2023Microsoft$148.3

To put these massive gains into context, consider this: As of May 2023, the average market cap of an S&P 500 company was $30.4 billion.

Meta’s $197B Record Didn’t Last Long

On Feb 2. 2024, Meta set a new record for the largest single-day gain after reporting strong quarterly earnings, as well as announcing $50B in share repurchases and its first ever dividend payment.

This record lasted only 20 days, however, as Nvidia’s massive Q4 2024 earnings beat sent it to all-time highs. The firm is now nearing a $2T valuation, firmly placing it among the world’s most valuable corporations.

More on Nvidia’s Earnings…

Nvidia reported $12.3B in net income during Q4 2024, which is 769% higher than the same quarter last year. Revenues are also up 265% from last year, largely driven by demand for its AI chips like the H100 Tensor Core GPU.

Nvidia’s earnings have seemingly shifted the AI craze into another gear, boosting other chip stocks like AMD and Super Micro Computer (SMCI) to double-digit % gains for the day (Feb 22).

Continue Reading
MSCI Climate Metrics Paper - A simple toolkit for climate investing

Subscribe

Popular