Stock Sector 2017: Winners and Losers
The stock "market" is actually comprised of many little markets. There can be bull or rising phases in some, and bear or declining phases in others.
At SheCanTrade, every day we trade stocks from a variety of sectors. It's important to undertand the big picture view.
Drilling Down into the Sectors
The broader U.S. stock market is divided up into 11 different industry groups or sectors. (That includes the newly added 'real estate' sector.) Different sectors are tied to varying parts of the business cycle. That means some sectors can rise while other sectors fall.
Here's how the broader market has performed year-to-date:
S&P 500 + 15% (through Nov. 3)
Now, let's take a look at how certain sectors stack up against the broader market:
Information Technology +35%
Health Care +20%
Consumer Discretionary +13%
Telecommunications Services -16%
A big difference, right!? Let's dig deeper.
First Place: Information Technology
These are some of the most fun and popular stocks to trade. IT is home to big name companies including Apple (AAPL) Facebook (FB) and Alphabet (GOOG). Strong earnings growth and attractive balance sheets generated healthy investor interest this year. The information technology sector includes companies that cater to cloud computing, anytime anywhere connectivity and even social media. Some on Wall Street say the future of the global consumer and global commerce can be found inside this sector. They may be right.
A Solid Second: Health Care
Interestingly, Health Care is a traditional "defensive" stock market sectors, or those that tend to outperform during weak economic periods or even bear markets. This is also the home to biotech stocks, which are a whole different animal. Some of the biggest high flying bio tech stocks call this sector home.
A Respectable Third Place: Materials
The materials sector includes commodity-oriented, non-energy stocks. Think companies like mining and metals, chemical producers and forestry and paper products. The materials sector is considered cyclical because demand ebbs and flows with the business cycle.
Big picture, this group tends to be an outperformer during the mid-to-late portion of the economic cycle – so it is no surprise it is performing well in 2017. The current U.S. economic expansion began in June 2009 and is over twice as old as the average expansion since 1900.
Financials: Say Thank You to the Fed
The financial stocks, including banks and brokerage firms, have churned out big wins in 2017. No surprise there. The Federal Reserve has been hiking interest rates in recent years (admittedly at a truly glacial pace). But that does give the banks the opportunity to improve their bottom line as they can charge more in interest on loans.
Utilities: A Defensive Play in an Aging Market
Often called "widows and orphans" stocks, the utilities sector is viewed as a defensive play where income-seeking investors can park their cash in perceived safety. The sector includes electric, gas, and water utility companies along with independent power producers. These typically generate high levels of dividend payouts.
The strong inflow into this sectors could signal there are investors who are wary of this current 8.5 year long bull market, and they are moving into traditional defensive sectors in preparation of a downturn.
Consider the View from 39,000
Just as a captain at cruising altitude has a good view of the country below him, using sector analyst offers traders a valuable "top-down" approach. After all, the old saying that a rising tide lifts all boats works for stocks too.
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My name is Sarah Potter and I've been trading for over a decade. My favorite strategies are income producing option trades. I trade every day and would love to have you join our community. Subscribe to my free podcast here.
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