How Sectors Are - Or Aren't - Holding Up

The U.S. stock market has been battered, twisted and otherwise assaulted over the past year or so. From the outside, the point requires no elaboration for those with equity positions of one type or another. But what has the havoc wrought on the internal sector allocations?

In search of some perspective, we crunched the numbers to see what's changed over the past two years in large- and small-cap sectors for domestic stocks. Let's start with the large-cap realm, as defined by the S&P 500 (all data comes from StandardandPoors.com).

As the above chart shows, information technology now occupies the top position in the S&P 500 as of yesterday, posting at 16% share of total market cap. Although that's up only slightly from its share of two years previous, the rise was enough to dispatch the former leader — financials — to the number two slot.

Given the carnage in financial shares of late, it's surprising that the sector retains as much share as it does. In any case, the relative change from two years ago is dramatic, as the gap between the red and black bars for financials reminds.

Meanwhile, the energy and consumer staples sectors have earned sharp gains in grabbing a larger relative share of S&P 500's market cap. No surprise there, given the bull market in energy and the recent bias toward businesses that supply staples, i.e., goods that Joe Sixpack can't do without. By comparison, companies selling non-essential goods and services, a.k.a., the consumer discretionary sector, has lost relative ground over the past 24 months.

How does all this compare with changes in small-cap sectors? One obvious difference is that industrials dominate market cap for the S&P 600, as our second chart below shows. But as in the large-cap arena, financials are also in second place in the S&P 600. But in a twist, small-cap financials have gained relative ground in terms of market cap share, in sharp contrast to the stumble in their large-cap brethren.

Another difference in the small-cap sector mix is that energy firms have lost relative ground in the S&P 600. The 8.3% share of market cap for small caps two years ago has shrunk to 7.0% as of yesterday.

As for trends running in parallel for both large- and small caps: materials and telecom services in both realms are still at the bottom of the pile in terms of market cap shares. For these sectors, not much has changed in terms of overall weight in the broad indices.

Overall, the correction in stocks generally has redistributed sector market caps to a less extreme mix in large caps, due mostly to the haircut in financials. In small caps, on the other hand, concentration in industrials and financials has gone up a notch over the past two years.

Comments

[Jason Rines...:]

These are very interesting charts, thanks for posting. Applied to my small business in InfoTech and Healthcare they fit to a T, with revenue coming in nicely on Consumer Health but the Info Tech just beginning to catch up.

This seems to make sense, earning Info Tech jobs is very much about larger trade name recognition and comfort level with sales prospects. Even with a market solving solution, it takes more time and personal executive references to convince a larger organization you can deliver the goods in the timeframe and tech functionality required. However, boutique shops focusing on a sector niche are beginning to siphon some of this business away as a smaller company is viewed as hungrier and willing to work harder for the business then a larger company.

Tech management is very much like babysitting toddlers. Tech guys just abhor deadlines and constantly attempt white resistance to keep there own time available during the day for non-productive tech tinkering. Techs have little to no business understanding. They are artists and I respect the trade but the two don't often mix well.

2008 Sep 11 03:09 PM

[Me Again:]

Financials went up, energy down in the S&P 600 in part because of rebalancing. The absolute number of small cap energy names plummeted, as so many names grew out of the cap range. Meanwhile, lots of ex-large and midcap financials are now small and micro. The S&P indices are not passive, but they can't escape the absolute sizes of the opportunity sets.

2008 Sep 11 04:26 PM