The Best S&P Sectors for Q1

by Jim Woods | April 4, 2012 12:05 pm

The first-quarter market boom was indeed impressive, with the S&P 500 Index surging 12% during the initial three months of 2012. The broad-based buying we witnessed in the market was especially strong in the financial, technology and consumer discretionary sectors, with each of these three S&P sectors leading the bullish charge.

The table below is a look at Bloomberg’s data showing the nine exchange-traded funds (ETFs) representing each respective sector:

Sector Ticker Q1 Performance
Financials XLF +21.88%
Technology XLK +18.89%
Consumer Discretionary XLY +15.91%
Industrials XLI +11.38%
Materials XLB +10.78%
Health Care XLV +8.97%
Consumer Staples XLP +5.45%
Energy XLE +4.18%
Utilities XLU -1.70%

As you can see, financials were the biggest winners in Q1, with the Financial Select Sector SPDR (NYSE:XLF[1]) capturing top honors. This measure of bank stocks spiked 21.88% in the quarter as it rode gains in top components Wells Fargo (NYSE:WFC[2]), JPMorgan Chase (NYSE:JPM[3]), Citigroup (NYSE:C[4]) and Bank of America (NYSE:BAC[5]). Bank stocks surged after the Federal Reserve announced that most banks had passed the latest “stress test”[6] with flying colors.

In second place was technology stocks, with the Technology Select Sector SPDR (NYSE:XLK[7]) surging 18.89% in the first three months of 2012. This high-profile sector has many of the most desirable growth stocks, including Apple (NASDAQ:AAPL[8]), IBM (NYSE:IBM[9]) and Intel (NASDAQ:INTC[10]). The appetite for stocks in the segment helped XLK enjoy one of its best quarters in years.

The gains in the Consumer Discretionary Select Sector SPDR (NYSE:XLY[11]) also were strong in Q1, as people spent a lot of money with stalwarts in the sector such as McDonald’s (NYSE:MCD[12]), Comcast (NASDAQ:CMCSA[13]) and (NASDAQ:AMZN[14]).

Interestingly, energy stocks posted only modest gains despite a big rise in the price of crude oil and gasoline. In fact, the Energy Select Sector SPDR (NYSE:XLE[15]), an ETF that holds the largest companies in the energy space, rose just 4.18% in Q1. That performance was bested nearly threefold by the S&P 500, and it put XLE near the bottom of the performance table. Top holdings in this fund include energy giants Exxon Mobil (NYSE:XOM[16]) and Chevron Corp (NYSE:CVX[17]), and both were basically flat for the quarter. The large weighting of these stocks in XLE contributed to the mediocre sector showing.

The worst-performing group so far in 2012 has been utilities. The Utilities Select Sector SPDR (NYSE:XLU[18]) was down 1.7%, and was the only S&P sector with a loss in Q1. Stocks in this space such as Dominion Resources (NYSE:D[19]) and Exelon Corp (NYSE:EXC[20]) sold off in the quarter, as money migrated from stable, low-beta sectors like utilities to financials and tech.

The sector performance through Q1 clearly shows that the risk trade is on, and if that risk-trade mentality continues dominating the market in Q2, we could be looking at very similar rankings three months from now.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

  1. XLF:
  2. WFC:
  3. JPM:
  4. C:
  5. BAC:
  6. passed the latest “stress test”:
  7. XLK:
  8. AAPL:
  9. IBM:
  10. INTC:
  11. XLY:
  12. MCD:
  13. CMCSA:
  14. AMZN:
  15. XLE:
  16. XOM:
  17. CVX:
  18. XLU:
  19. D:
  20. EXC:

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