A Look Back At What's Happened To Each Sector Through The First Half Of 2018 (Part 1)

It may not be as large as the bond market or as ubiquitous as real estate, but the stock market is definitely the most talked about of the financial markets.

And while this has pretty much always been the case, the rise of index investing and robo-advisors in the last decade or so has certainly opened up the stock market to a new generation of investors.

For those just getting into the market or testing their chops in Quicken Loans fantasy stock league, we’ve put together a primer on just what is happening across each of the main sectors. There are 11 sectors according to the global industry classification standard, and here’s what each of them has done in the first half 2018.

Here’s the scoop on the top five sectors ordered from largest market cap to smallest as of this writing. You can find the other six here.

Information Technology

The sector with some of the hottest stocks in the past decade, tech segments remain the fastest growing industries today. The “FAANG” contingent of Facebook Inc. FB, Amazon.com, Inc. AMZN, Apple Inc. AAPL, Netflix, Inc. NFLX and Google-parent Alphabet Inc. GOOG GOOGL have resumed their upward climb after stumbling earlier in the year. These are the clear market leaders, despite enduring a sell-off in February. Even Facebook, which endured a rough March thanks to the Cambridge Analytica scandal, has more than recovered to make new all-time highs.

Semiconductor plays like NVIDIA Corporation NVDA and Advanced Micro Devices, Inc. AMD have also been huge sources of strength. Looking to July, many of the mega-cap internet, data and hardware companies are now making new highs. Still, investors should be wary. As February showed, a turn in overall market sentiment would hit this sector the hardest because many of these stocks represent large components of broad indexes.

The Technology Select Sector SPDR Fund XLK is up 12.28 percent year-to-date at the time of this writing.

Financials

If there’s a sector that’s had an unpredictable 2018, it’s financials. You’d think a hawkish Federal Reserve and strong economy would mean good things for financial stocks, but that has not been the case this year. The overall sector has been weak as several banks have grappled with smaller margins in their trading units.

The Fed is expected to announce three more rate hikes this year. Interest rate policy will continue to be a driver for banks and any other lenders or insurers since higher rates make rate-sensitive financial instruments more appealing, many of which are sold or otherwise handled by banks to supplement short-term lending. And, although demand is up among longer-term borrowers like homebuyers and small business, rising mortgage and lending rates as well as extremely high home and material costs may dissuade many from borrowing at all. Evidence of shaky lending is already mounting for credit card companies like Visa Inc. V

The Financial Select Sector SPDR Fund XLF is down 1.76 percent year-to-date at the time of this writing.

Consumer Discretionary

Arguably the strongest indicator of economic health is discretionary spending, which includes everything from dining out to buying a new car to going to the movies. Spending has been healthy in 2018 according to data from the Bureau of Economic Analysis, which shows steady quarterly growth in goods and service spending between 1 and 4 percent over the past 12 months.

This optimistic spending has put a new lease on life for a previously struggling restaurant industry, with share price in Darden Restaurants, Inc. DRI and Chipotle Mexican Grill, Inc. CMG both seeing growth through much of the year. Media giants like Walt Disney Co DIS and Twenty-First Century Fox Inc. FOXA continue to find success consolidating their properties. Even retail names like Macy’s, Inc. M and Lululemon Athletica inc. LULU have undergone a very recent rally due to strong sales figures.

Companies in the automotive space like Ford Motor Company F, General Motors Company GM and AutoZone, Inc. AZO saw some weakness early in the year, but have since picked up some steam coming into summer after strengthening sales. However, the risk of rising costs from tariffs could hamper the entire sector if consumers in the U.S. and abroad end up having to pay more for goods across the board.

The Consumer Discretionary Select Sector SPDR Fund XLY is up 13.41 percent year-to-date at the time of this writing.

Health Care

The health sector’s fortunes have changed several times throughout 2018. Flush with capital late in 2017, the biotech industry experienced a rash of high-profile acquisitions, including Kite Pharma’s acquisition by Gilead Sciences, Inc. GILD and Celgene Corporation CELG purchase of Juno Therapeutics, among others.

The rampant enthusiasm around big biotechs has cooled somewhat. This is in part due to changes in regulatory policy brought about by President Trump’s “Right to Try” initiative that allows patients greater access to more experimental treatments.

While the pharmaceutical industry is adjusting to these changes, investors have turned their attention to healthcare providers. Two of largest, Medtronic PLC MDT and UnitedHealth Group Inc UNH have rallied by 10 and 20 percent respectively since mid-March of off solid quarterly earnings.

The Healthcare Select Sector SPDR Fund XLV is up 2.37 percent year-to-date at the time of this writing.

Industrials

In what could potentially have a similar outlook as that of the materials sector, industrial companies might find themselves having an even tougher time of it in the second half of 2018 as material prices rise. General Electric Company GE, which has lost more than half of its per-share value in the past year, is the extreme case of the struggles among some in the sector. Others, such as Honeywell International, Inc. HON and United Technologies UTX have also lagged behind the broader market throughout 2018.

That’s not to say there aren’t bright spots among the industrials. Boeing Co. BA and Lockheed Martin LMT have shown strong revenue results over the past few quarters, which positioned them as market leaders several times through the year. However, this is the sector most exposed to international trade regulations. If this trade war with China and other countries continues, expect that to loom as a dark cloud over the sector.

The Industrials Select Sector SPDR Fund XLI is down 1.4 percent year-to-date.

For an overview of the other six sectors, click here.