Skip to Content

In a down market for stocks this year, how significant has the difference been between the relative winners and losers?

The underlying performance difference between the best- and worst-performing S&P 500 market sectors this year has been the most extreme in decades.

Sector PerformanceAs investors, we often tend to think of what happens in markets based on the direction of indexes such as the S&P 500 or Russell 2000 on a given day or over time. That doesn’t always tell the whole story though. Underlying those diversified gauges of the market are sometimes very different stories for specific stocks or market sectors (e.g., technology, financials, or energy). In fact, the difference between the top- and bottom-performing sectors is typically in the range of 25 to 50% in any given year. That differential can widen significantly at times, as was the case in the late 1990s/early 2000s, in 2020, and this year. This tends to be the case during periods of heightened volatility but can also be seen during periods when market leadership, cyclical investment themes, or broader market fundamentals go through a period of transition.

In 2020, sector dispersion was unusually wide, reaching 78% between the best-performing technology sector (up 44%) and the worst-performing energy sector (down 34%). This year, that differential has been even more magnified, as tailwinds from supply dynamics and surging commodity prices boosted the energy sector by nearly 70% through October, while growth-oriented sectors with higher valuations have struggled under the weight of rising interest rates. The result? The performance differential between the top-performing sector (energy) and the worst-performing sector (communication services) has been significant — more than 100% through October 31.

Why does this matter? Periods like this can provide greater opportunities for active managers to add value. In addition, the sharp reversal in sector leadership over the past few years illustrates the dangers of chasing performance, the importance of remaining diversified, and the benefit of rebalancing. Past performance doesn’t predict future results; today’s strong performers often become tomorrow’s laggards.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

Related Thinking

empty office
November 17, 2022

First-time jobless claims eased last week despite growing talk of layoffs

Blog 2 min read
colleagues looking at tablet
November 10, 2022

Prices are still rising, but glimmers of hope are emerging

Blog 2 min read
People sitting at table looking at data
November 3, 2022

Will cash continue to outperform bonds?

Blog 1 min read