S&P 500 Sector Returns Chart – First Half 2022

Novel Investor has updated the sector returns chart for the S&P 500 for the first half of year 2022. This chart shows the annual returns of the various sectors of the S&P 500 together with the current year data.

With bear market raging across the equity market, the best performing sector this year has been the energy sector with a return of over 31%. This follows the best performance of the sector in 2021. The other sectors that have relatively performed better so far this year include: utilities, consumer staples and health care.

On the other hand, the worst performing sector is consumer discretionary followed  by communication services and information technology. All these have declined much more than the S&P 500 as shown in the chart below:

Click to enlarge

Source: Novel Investor

Related ETFs:

  1. SPDR S&P 500 ETF (SPY)
  2. iShares Core S&P 500 ETF (IVV)
  3. Vanguard S&P 500 ETF (VOO)
  4. SPDR Portfolio S&P 500  ETF (SPLG)

Disclosure: No positions

Knowledge is Power: Short-Termism, All-Weather Investing, Market Volatility Edition

The US equity market is in the midst of the one of the worst bear markets in decades. Though there are occasional rises in the market for a day or two, the S&P 500 is down over 18% YTD. Energy stocks are the winners so far this year. Utilities are holding up well with a decline of just 1.9% YTD.

In Europe, Germany’s DAX is down over 18%. UK’s FTSE 100 is off by 2.5% but the domestic economy focused FTSE-100 has plunged by about 20% YTD.

Some emerging markets are performing better than developed markets. Chile is up by over 12% while Brazil and India are off by 4.3% and 6.5% respectively. With that said, below are some interesting reads for the weekend:

Food Stocks Offer Shelter and Some Growth in Bear Markets

In bear markets there are very few places that investors can hide. Traditionally a few sectors such as utilities, healthcare and food offer shelter from the market storm. These sectors are somewhat immune to factors such as inflation and are necessities that consumers will need even during market downturns. For example, while consumers may cut down on discretionary items such as vacations, furniture, autos, etc. they are not going to avoid buying food.

Among the major food producers, General Mills(GIS) beat earnings and revenue forecasts in the most quarter and also increased its dividend payments by about 6%. This was possible because the firm has pricing power and consumers pay higher prices for their favorite cereals and other items.

With that said, the below chart shows the comparative year-to-returns of major food stocks:

Click to enlarge

Source: Yahoo Finance

With the exception of J M Smucker Co (SJM) all of the stocks shown are in the positive territory. This type of performance is hard to come by in a bear market when everything keeps going down.

The contrast in the performance of food stocks vs. the overall market is substantial. While the S&P 500 is down 20%, Post Holdings Inc (POST) has shot up by 21% so far this year. The company even implemented a stock split a few months ago.

The key takeaway is that food stocks offer stability and some growth during adverse market conditions. These stocks may seem like offering no returns during bull markets. But their true value becomes clear when growth stocks plunge and the bear is in control.

Disclosure: Long GIS

A Review of Foreign Oil and Gas Producer Stock Returns

US stocks are squarely in the bear market with the S&P 500 down over 20% so far this year. There is no place to hide and take shelter as most sectors are down. One of the few sectors that has performed well is the energy sector. Energy stocks are up by 29.2% YTD. Crude has soared by over 40% and natural gas is also a winner with a rise of 45.4% year-to-date.

The demand for oil and other energy commodities has shot up and continues to remain strong with the end of the Covid-19 pandemic. Despite high prices consumers are traveling for example. The Russia-Ukraine war has also made the situation worse. Oil prices are unlikely to go down significantly until the war ends. Releasing small amount of oil from the Strategic Petroleum Reserve (SPR) and cutting federal taxes are all for PR purposes and is not going to help take the price of gasoline to pre-pandemic levels.

With that said, most of the oil stocks have performed very well in this brutal market. For example, US energy giant Exxon Mobil (XOM) has increased by 38%. After reaching as high as $104 the stock is currently trading at over $87. Similarly Chevron(CVX) and ConocoPhillips(COP) have risen by 23% and 24% respectively.

Though US energy stocks are up by double digit percentage points, not all exchange-listed foreign oil producers have done well. For instance, Norway’s Equinor (EQNR) has gone up 28% YTD.

The Year-to-Date returns of Foreign Oil & Gas Producers trading on the US exchanges are shown below:

Source: BNY Mellon

Industry leaders such as Total and BP have had average returns so far this year. Political risk had led investors to flee Colombia’s EcoPetrol(EC) since the country elected its first leftist President Gustavo Petro.

From an investment perspective, the time to buy oil stocks was last year. However investors looking to add foreign oil stocks can keep an eye on the above list and look for attractive entry points.

Disclosure: Long EC

Quick Post: A Look at SPDR S&P Biotech ETF

Biotech stocks have not performed well for many months now. The sector soared in 2020 and peaked in early 2021. Despite high hopes for the industry due to vaccine development and impacts of Covid-19, stocks in the industry plunged or languished with no end in sight.

The current bear market adds more pain to biotech stocks. One of the big two biotech ETFs is the SPDR S&P Biotech ETF (XBI). This ETF can be considered as the proxy for the industry. It has declined by about 34% year-to-date. This is much worse then the overall market as represented by the S&P 500.

SPDR S&P Biotech ETF – Year-to-Date Return:

Click to enlarge

Source: Google Finance

The five year chart shows the bull market that started in 2020 and reached a peak in early 2021:

Source: Google Finance

A recent article in the journal noted that big pharma firms would not bailout the battered sector. From the piece:

The stock market might be in the doldrums, but the biotechnology index has fallen off a cliff. One measure says it all: Dozens of publicly traded biotechs have dropped so much that they are now valued below the amount of cash they have in the bank.

Some healthcare investors have been pointing to that trend as a sign things have started to bottom. The argument goes that biotech has become so cheap that big pharma—staring down a patent cliff and armed with hundreds of billions of dollars of dry powder for acquisitions—will come to the rescue. Indeed, a popular biotech exchange-traded fund, the SPDR S&P Biotech ETF, has rebounded by around 20% from its recent lows.

That analysis paints with too broad a brush. Many of the companies now trading below cash are likely to go out of business in a macroeconomic environment in which their key input cost—money—is rising. To an even greater degree than high-growth tech companies such as Shopify or Roblox, biotech struggles in a rising interest-rate environment because many companies don’t have any real revenue streams and don’t expect to have a product in the market for years. Sadly for both investors and patients, clinical trials move slowly.

That problem has been exacerbated by a biotech bubble in recent years as too many early-stage companies went public. In 2021, the peak bubble year, 111 biotechs had initial public offerings in the U.S., topping the previous peak of 91 in 2020. Some of those companies are still conducting preclinical trials, meaning they haven’t even begun testing their therapies on humans.

Source: Big Pharma Won’t Bail Out Battered Biotech, WSJ

From an investment perspective, it is important to remember that biotech stocks are not for the faint hearted. A single clinical trial failure can crush a stock almost overnight. Though a few will be winners and can earn astonishing returns, finding that stock from hundreds is impossible to say the least. Instead of individual stocks simply going with an ETF won’t work either as the above charts show.

Disclosure: No positions