Stocks can be crushed in bear markets with no guarantee of recovery. But markets, more broadly, tend to move in cycles. The worst can become first and vice versa.
The S&P 500 is the perfect example of this cyclicality where last year’s worst performers are this year’s darlings. The sector returns, specifically, show that the worst-performing sectors last year — Info Tech, Consumer Discretionary, and Communications — are the three best performers year to date.
With cycles, it’s relatively simple to guess what might qualify for some reversion to the mean. Just look to the most extreme market performers. Except, it’s difficult to guess when it happens.
Hindsight, of course, makes it easy to explain why two of those three sectors performed so well thanks to the bump from AI. Yet, how many predicted they would have such a phenomenal start to the year?
Market history is filled with examples of worst-performing asset classes over one or more years that find their way to the top of the list once (almost) everyone least expects it. Put simply, bear markets in asset classes and sectors turn into bull markets eventually.
The lesson is not about timing but rather staying put. Being invested throughout the cycle brings the upside of surprising bounces, without the need to know when to get back in.
A note before getting to the 2023 numbers. The asset class, sector, international markets, and emerging market return quilts are up-to-date with the first-half returns for 2023. Hit the links for each one.
You’ll find four tables below. The first three break down U.S. sectors, developed markets, and emerging markets returns by month. The final table shows the quarterly returns of all three ranked by total return year to date.
Of course, the tables offer some broader lessons for investors:
- Monthly returns show how quickly markets can move over a few short weeks. Investors must put up with big market swings to earn that annual return for each year.
- Predicting the ebb and flow of markets is nearly impossible. You may get lucky a time or two but trying to time the market’s monthly or quarterly swings is for fools.
- The advantages of diversification should be clear in each table below. As mentioned earlier, owning the best performers alone would be great if you could predict it in advance, but diversification is a survival tactic that happens to ensure you also own the best performers of the bunch.
Some lighter observations also stand out:
- Greece is another example of the worst shall be first…but how long it can take to happen. Greece has been the worst-performing global market since 2008, losing an average of 21% per year. Eight of the last 15 years were losses, all double-digits. Yet, like an inconsistent clock, it was a top performer for two of those 15 years. Once again, it’s found its way to the top of the global market list with a 43.5% return over six months.
- Turkey’s market found itself at the opposite end with an 18.8% loss year to date. Turkey experienced losses in every month except February.
- The top three U.S. sectors — Info Tech, Consumer Discretionary, and Communications — each performed at least twice as well as the S&P 500. It’s safe to say those three sectors are driving the index’s performance year to date.
- Info Tech was the only sector, or market for that matter, to see a gain in each month this year…so far.
- In 6 of the past 9 years, the best-performing sector through Q2 of the year ended the year as the best-performing sector. Utilities in 2014 (real estate had not been spun out as its own sector yet). Info Tech in 2017, 2019, and 2020. Energy in 2021 and 2022.
- As an example of how widely markets can swing in a month, the Czech Republic experienced a great “year” in January with a 17% gain. Columbia saw a 16% loss the next month.
- Every developed market rose in June, ranging from 0.7% up to 11.1% for the month. The same was true for every U.S. sector.
- All but four developed markets — Israel, Norway, Hong Kong, and Finland — experienced losses year to date. Those four markets were also the worst performers to end Q1. Though, only two sat at the loss back then.
Related Reading:
2023: Q1 Returns
2022: A Year in Returns
