For many months we have been forecasting a rotation from highly cyclical, more speculative stocks into higher-quality and more defensive blue chip stocks. This rotation seems to be continuing.
We went back and looked at the performance of the ten industry sectors within the S&P 500 over the past two and a half months. The start date was July 22, which was the beginning of the market sell-off. Below, we show the results of our analysis.
The highly cyclical sectors, including Materials, Energy, Financials and Industrials, were the worst performing sectors during the period. The more defensive sectors, which generally offer more earnings stability and higher dividend yields, performed the best. These sectors included Utilities, Consumer Staples, Telecom, Information Technology, and Health Care.
We also wanted to look at the relative performance of small-cap stocks versus the larger stocks represented in the S&P 500. The Russell 2000 Index is the most widely used proxy for small-cap performance. As the chart below shows, the large-cap stocks within the S&P 500 have handily outperformed the Russell 2000 since the sell-off began on July 22. In fact, the Russell 2000 is down nearly 23% compared to the 16.4% decline in the S&P 500.