Q2 served as an almost mirror image of Q1, with former laggards becoming leaders. While the market, as measured by the S&P 500 (SPY), fell in price by 3.3%, four of the ten sectors actually rose. Unfortunately, they were among the smallest ones, with the two largest sectors, Technology (XLK) and Financials (XLF), leading the way down. Interestingly, these two sectors remain among the leaders in 2012 despite the poor showing. Here is how the market looks from a Q2 and YTD perspective:
The source of data is Standard & Poors, and I sorted the sectors by Q2 Returns. The column to the left indicates the current representation by market cap in the S&P 500.
In Q2, the strongest sectors were the ones typically least correlated with the economy, while he more cyclical sectors performed weakest. As I mentioned, the quarter was somewhat the opposite of Q1 in terms of relative strength. Two of the leading sectors in Q2, Utilities (XLU) and Consumer Staples (XLP), are still trailing the market's 8.3% return YTD, while the two worst sectors are still winning.
Let's take a look now at the winners and losers for Q2 by sector:
- Telecom Services (IYZ): Verizon (VZ), Sprint Nextel (S) and AT&T (T) were all up more than 14%, while tiny MetroPCS (PCS) fell by 33%
- Utilities : Performance was rather consistent, but a few stocks stood out on the upside, all with returns in excess of 10%, including Sempra Energy (SRE) at 15%, Progress Energy (PGN), Nextera Energy (NEE) and Wisconsin Energy (WEC all at about 13%) and long-suffering NRG Energy (NRG) up 11%.
- Consumer Staples : Dean Foods (DF) rocked the group, climbing 41%, with several other double-digit movers, including Hershey (HSY) up 17%, Brown-Forman (BFB) up 16%, Constellation Brands (STZ), Monster Beverage (MNST) and Whole Foods (WFM) up 15% and Mega-Cap Wal-Mart (WMT) up 14%. Declining 12% or more were Walgreen (WAG), Estee Lauder (EL) and Avon Products (AVP)
- Healthcare (XLV): Edwards Lifesciences (EW) soared on good news from the FDA, improving 42%. Three double-digit gainers included Biogen Idec (BIIB), Perrigo (PRGO) and Watson Pharma (WPI). Three stocks to decline more than 15% were Aetna (AET), which fell 23%, Celgene (CELG), which dropped 17%, and Humana (HUM), which lost 16%.
- Consumer Discretionary (XLY): As is often the case, there was tremendous variation in this sector. Expedia (EXPE) increased 44% to lead the way, with its spin-out, TripAdvisor (TRIP) gaining 25%. D.R. Horton (DHI) and Pulte Group (PHM) both jumped 21%. In all cases, the Q2 gains were on top of solid Q1 performance. On the downside, it was brutal to be in any of these stocks: Fossil (FOSL) and Netflix (NFLX) fell more than 40%, wiping out Q1 gains, while JCP (JCP) and Abercrombie & Fitch (ANF) declined more than 30%. They had both lagged in Q1. Also suffering greatly were Carmax (KMX), Coach (COH), Tiffany (TIF), Ford Motor (F), BorgWarner (BWA) and Whirlpool (WHR), all falling more than 20%.
- Industrials (XLI): Performance was mixed, with four stocks rising more than 10%, including Quanta Services (PWR), Iron Mountain (IRM), Southwest Airlines (LUV) and Union Pacific (UNP). Interestingly, all of these had lagged in Q1. To the downside, five stocks were hammered more than 20%, including Ryder System (R), Fastenal (FAST), Joy Global (JOY), Eaton (ETN) and Caterpillar (CAT).
- Materials (XLB): Sherwin-Williams (SHW) extended off of its strong Q1, tacking on another 22%. Ecolab (ECL) and PPG Industries (PPG) both gained 11%. On the downside, US Steel (X) and Cliffs Natural (CLF) fell almost 30%, while Allegheny Tech (ATI) and Sealed Air (SEE) dropped over 20%.
- Energy (XLE): Surprisingly, a few stocks climbed nicely, including Cabot Oil & Gas (COG), rebounding 26% from a huge Q1 sell-off following its strong 2011. Sunoco (SUN) extended Q1 gains and is up 39% in 2012 after a 25% gain. EQT (EQT) also rose 11%. Alpha Natural (ANR) plunged 43%, while Hess (HES), FMC Technologies (FTI) and Pioneer Natural (PXD) dropped more than 20%.
- Information Technology : There were only two double-digit winners, including EBay (EBAY) and Verisign (VRSN), both of which climbed 14% and extended on Q1 gains. Losers dominated the sector, with First Solar (FSLR) plunging nearly 40% and NetApp (NTAP), Juniper (JNPR) and Advanced Micro (AMD) all falling nearly 29%. Big-dog Apple (AAPL) fell less than 3%, edging out the market and clinging ultimately to the big Q1 returns.
- Financials : Though it was the weakest sector, a few winners emerged, including HCP (HCP), American Tower (AMT), Ventas (VTR) and Cincinnati Financial (CINF), all climbing by more than 10%. On the downside, Genworth (GNW) fell 32%, while E*Trade (ETFC), Morgan Stanley (MS) and Citigroup (C) dropped 25% or more.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.