In an earlier post, we highlighted the fact that some of the biggest winners in terms of individual stocks in the second half so far were also up strongly in the first half. Similarly, the worst performers to start the second half were also down big in the first half. In terms of sector performance, the continuation pattern is even more apparent.
The scatter chart below compares the average return of stocks in the Russell 1000 by sector in the first half (y-axis) to their average return in the second half through last Friday (x-axis). Here, there is a clear pattern where the sectors with the stocks that did best in the first half are continuing to feel the love in the second half, while the sectors with the worst average performance in the first half continue to be out of favor in the second half. For example, stocks in the Energy sector were down the most in the first half, and they are off to the weakest start in the second half as well. Similarly, the sectors with the best-performing stocks in the second half were all positive in the first half as well. As shown, the trendline of returns for all eleven sectors has an r-squared of 0.65, which implies a strong positive correlation. Obviously, a lot can change as time goes on, but so far this half investors are using a very similar playbook in the second half as they did in the first.
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