8 of the 11 S&P 500 sectors end the month green, but the range is wide
Over every single time period, sector performance will be driven largely by factors one would expect, such as the overall state of the economy, underlying corporate earnings, current and predicted interest rates, and inflation, among other factors.
Reviewing the sector performance for the month of May (a very short time-period), two things become very clear:
- First, sectors do not move in lock-step with one another and will often provide very divergent returns for investors – depending on timing and the current economic climate and
- Second, May continued to see significant divergence in sector performance, with 8 of the 11 posting positive numbers for the month.
Sector Highlights Through May 2021
The overall trend for sector performance for the first quarter was very good, but the performance leaders and laggards continued to rotate in May, just as they did for each of the preceding four months, rotating a couple of times over a very short time period.
For a slightly longer-term perspective, recall that about a year ago, we saw the first quarter of 2020 end with every single one of the S&P 500 sectors painted red.
Looking at past quarterly returns, we remember that:
- Q22020 ended with every one of the 11 sectors turning in positive numbers;
- Q32020 ended with 10 of the 11 positive;
- Q42020 ended with all 11 positive; and
- Q12021 ended with all 11 positive.
Here are the sector returns for the month of May as well as April (two very short time-periods):
S&P 500 Sector | April 2021 | May 2021 |
Information Technology | +5.78% | -3.42% |
Energy | -1.27% | +6.63% |
Health Care | +3.07% | +0.66% |
Real Estate | +7.07% | +2.06% |
Consumer Staples | +0.40% | +2.82% |
Consumer Discretionary | +8.78% | -3.49% |
Industrials | +3.60% | +2.64% |
Financials | +6.21% | +5.86% |
Materials | +4.44% | +4.79% |
Communication Services | +7.94% | +3.00% |
Utilities | +3.93% | -1.31% |
Source: FMR
For the month of May, sector performance was mostly positive, as only 3 of the 11 sectors ended the month in the red.
But the range in sector-returns was wide, with Energy and Financials both up more than 5% while Information Technology and Consumer Discretionary each lost more than 3%.
Those wide ranges also continued last month’s sector rotation, as the best performing sector for the previous month was Consumer Discretionary (+8.78%) and the worst performer was Energy (-1.27%).
What Does It Mean for Investors?
At a very basic level, the differences in returns for the 11 S&P 500 sectors support two fundamental principles of financial planning – asset allocation and diversification.
At your next portfolio review, let’s revisit the differences between asset allocation and diversification. And we can discuss how your portfolio should be consistent with your risk profile and personal goals.