Does S&P sector performance foreshadow what is to come in 2023?
The market has had a wild first two months to the year, firing on all cylinders in January and paring some gains in February, only to resume its upward ascent last week. Investors are now sizing up their outlooks as trading begins for the first full week of March, with several upcoming catalysts that have the potential to sway market direction. On Tuesday and Wednesday, Fed Chair Jay Powell will head to Capitol Hill for his semi-annual testimony, ahead of the February Jobs Report released on Friday. Don't forget the latest Consumer Price Index that will be published next week, as well as Fed's March policy meeting (and quarterly rate projections) that will come at the end of the month.
Backdrop: One of the best gauges of market health is the benchmark S&P 500 (SP500), but perhaps an even better gauge of the internal happenings of the market are the sectors that make up the index. They adhere to the same industry taxonomy closely followed by the financial community, which was developed by Standard & Poor's and MSCI in 1999. Called the Global Industry Classification Standard, or GICS, the structure consists of 11 sectors (as well as 24 industry groups, 69 industries and 158 sub-industries) that categorizes all major public companies.
What things have shown is that many of the big trades that were hot in 2022, namely energy, consumer staples and healthcare, have been relegated to the back burner. It appears that investors are betting that the record profits seen in 2022 will be hard to replicate in terms of future growth rates, but a rebound might be in store as the year progresses. On the other hand, information technology, which makes up nearly 28% of the S&P 500, has significantly outperformed on the back of rocketing interest in artificial intelligence and massive U.S. subsidies that are pouring into the chip sector.
Outlook: The benchmark S&P 500 Index (SP500) is up 5.8% so far in 2023, after falling nearly 20% in 2022 to mark its worst performance since the financial crisis. It also gives investors plenty of time to make calls on the rest of the year. Check out the 5 Stocks To Own In The S&P 500 by Steve Cress, Head of Quantitative Strategies at Seeking Alpha, as well as SA's stock screener, where users can discover new stocks based on each S&P sector.