There’s still a little bit more trading left in 2018, but between now and the closing bell, we wouldn’t expect much of a major shift in the final performance numbers for the major market sectors. The chart below shows the annual percentage change of the 11 S&P sectors by year in terms of price returns. Additionally, the shading for each sector represents how that sector performed relative to other sectors for that particular year. For example, in 2018 Energy was the worst performing sector with a decline of 20.9%, so it is shaded red, while Health Care, with a gain of 4.6%, has been the best performing sector, so it is shaded in green. The gap in performance between the best and worst performing sectors this year was 25.5 percentage points. While that may sound like a wide disparity between sectors, it is actually the narrowest performance gap between the best and worst performing sectors of any other year in the table! Last year, which was generally considered a year where everything traded higher, the performance gap was much wider at 42.9 percentage points as Technology rallied 36.9% while Telecom was down 6%.
Looking at recent trends in performance, one sector that stands out for its weakness is Energy. Over the last five years, the sector has been down for the year four times and been the worst performing sector in three of those years (2014, 2015, and 2018) and the second worst performing sector in the other (2017). While it was the best performing sector in the one year it was up (2016), since the end of 2013, it has been a sector where money goes to burn. To put the recent losses for the sector in perspective, over a period where the S&P 500 is up 31%, the Energy sector is down over 35%. Put another way, had you invested $100 in SPY at the end of 2013 ($131.15) you would now have more than twice the amount of money you would have if you had invested in XLE ($64.73). While the renaissance in US energy production has been great for the US economy, the companies actually involved in getting the stuff out of the ground have probably benefited the least.
What sector would have been the friendliest over that same time-span? That would be tech as $100 invested in XLK (the Technology sector ETF) would be worth close to $200 ($197.17) today. Times haven’t always been good for tech, though. The dark ages for the sector were from 2000 through 2002 when it lost 25% or more for three straight years. That’s a streak that no other sector can lay claim to, and the only sector that saw even back to back declines of 25%+ was Utilities. Yes, you read that right, the sector that is universally thought to be the most defensive sector in the market once saw a two-year stretch where it declined over 50%!