(After a decade+ of Keeping Score posts, the old page had gotten so big that it took an eon to load. So I’m continuing Keeping Score on a new page.)
January 2026
A crazy month.
The year got off to a fast start in Washington, as the president launched the US military to depose the head of the Venezuelan government and take possession of that country’s huge amounts of tar-like oil. The repressive regime there remains in place, however, and ex the barrels already in storage at the surface, experts say the world oil price would need to be 40% higher than currently for the underground oil to be economically recoverable. Still, an amazing display of US military power.
Then there was Greenland.
Then ICE operatives shot and killed two American citizens in Minnesota who were protesting the ICE deportation operations there. ICE leadership claims the two were terrorists who posed deadly threats to ICE, one by driving away in her car, the other by assisting a woman ICE had pepper-sprayed.
The S&P results for January, by sector:
Energy +14.4%
Russell 2000 +9.4%
Materials +8.7%
Staples +7.7%
Industrials +6.7%
Communication services +5.8%
EAFE +4.5%
Real estate +2.9%
Consumer discretionary +1.7%
S&P 500 +1.5%
Utilities +1.3%
NASDAQ +1.0%
Healthcare -0.02%
IT -1.7%
Financials -2.4%.
I read the spread between EAFE and the US as indicating global investors continue to view the US as one of the last places they want to place their money. My guess is this continues to be the case. ICE actions in Minnesota don’t appear to me to be a help.
January is typically a month when the dregs of the prior year–in our case, Materials, Consumer discretionary, Energy, Staples and Real estate–typically have at least a short time in the sun. The prior year’s stars, on the other hand–Communication services, IT, Industrials, Utilities–are targets of profit taking. Assuming this continues to be so, several things stand out to me:
–Energy, predominantly oil and gas, which arguably should be hurt the most by additions to the world’s oil output if/as Venezuela comes back online, was unusually strong. I have no real idea why. …maybe the idea is that Venezuela will be a big plus, at least for a while, for oilfield services and US-based frackers. Personally, I have no exposure other than through S&P/NASDAQ index funds. If I had to buy something, which I don’t, it would be oilfield services.
–Consumer discretionary continues to lag, which is understandable, given tariffs, ICE and the administration’s apparent desire to weaken the currency.
–IT vs. Communication services, the former weak, the latter strong. I think the distinction the market is making is between the makers of AI-related physical components and the providers of AI services, and so, rightly or wrongly, it is shifting emphasis from the former to the latter. The big question–one I have no good answer for–is how much of the IT weakness is just profit-taking after last year’s run. My guess is that it is, but I have no idea how long this will last. Note, too, that Communication services remains strong.
Overall, my guess is that the key to success in the US market will continue to be owning firms whose costs are in US dollars but whose revenues come from customers abroad. I’m also thinking that industrial is better than consumer.
2025–December, 3Q and full-year, in that order
December 2025
the second down month in a row, again by a very small amount
Healthcare +2.9%
Materials +2.0%
Industrials +1.1%
Consumer discretionary +0.7%
Energy +0.1%
S&P 500 -0.1%
IT -0.3%
Communication services -1.1%
Healthcare -1.5%
Staples -2.0%
Real estate -2.8%
Utilities -5.3%.
December is often a tidying-up month for professionals, rather than a time that gives strong signals about the possible future direction of the market. That’s all I see here (there may be more, but…)
4Q2025
Healthcare +11.2%
Communication services +7.1%
S&P 500 +2.4%
Financials +1.6%
IT +1.3%
Energy +0.7%
Materials +0.7%
Consumer discretionary +0.6%
Industrials +0.5%
Utilities -2.1%
Real estate -3.7%
What really jumps out to me is the absence of the traditional September-October market selloff spurred by mutual funds preparing for the end of their fiscal year on Halloween. To me this signals that the ETF has already effectively replaced the mutual fund as an investment vehicle for individuals.
full year 2025
Communication services +32.4%
EAFE (Europe, Australasia and the Far East) +27.0%
IT +23.3%
Nasdaq +20.4%
Industrials +17.7%
S&P 500 +16.4%
Financials +13.3%
Utilities +12.9%
Healthcare +12.5%
Russell 2000 +11.8%
Materials +8.4%
Consumer discretionary +5.3%
Energy +5.0%
Staples +1.3%
Real estate -0.4%.
Communications services, the best sector of 2025 in the US, is dominated by Google (+64.8% in 2025). Hence its star positioning. There has also been a lot of M&A activity among the smaller members, which added to its gains. What I find most striking is that this is the only sector that produced better results than simply having index exposure to the developed world ex US through an EAFE etf.
Two of the worst-performing sectors, Consumer discretionary and Staples are the most closely tied to the consumer and typically only occupy positions this low on the performance ladder during recessions. Not a huge surprise, given the Washington emphasis on tariffs and having ICE shrinking the domestic workforce.
The Energy sector, basically oil and gas, also deserves a mention, I think. I have to be careful here, since although I was at one time an expert here, I am not any longer. For what it’s worth, my sense is that the world has reached, and maybe has already passed, peak oil usage (I choose not to bet one way or the other, but if I had to it would be on “already passed”). If that’s right, the administration’s frantic efforts to prop up oil and gas drillers by shutting down alternative energy projects and rolling back mpg requirements for autos aren’t really going to much good in stabilizing or raising the price of fossil fuels. Delaying the domestic transition away from them may also do considerable harm, both to the domestic auto industry and to places like Texas and Florida. If this is anywhere near correct, this also spells trouble for the highest-cost producers, US-based frackers.
November 2025
The first down month for the S&P since April–but just barely so.
Results by sector for the S&P in November are as follows:
Healthcare +9.1%
Communication services +6.3%
Staples +3.9%
Real estate +1.8%
Energy +1.8%
Financials +1.7%
Utilities +1.3%
Materials +0.1%
S&P 500 -0.1%
Industrials -1.0%
Consumer discretionary -2.4%
IT -4.4%.
Defensive sectors did well, growth ones poorly. The exception is Communication services, where the largest member by far, GOOG, shot up last month by +19.3%. This is presumably on the idea that the company either is, or will become, a significant rival to NVDA in the AI chip-making business. On this same thought, whether it proves to be correct or not, NVDA was down by -12% for the month, making the fall in the IT sector in which it resides, that much deeper.
What has struck me the most about this year’s domestic market, other than its unusually weak relative performance, is the following (all gains/losses in $US):
year-to-date
EAFE +25.9%
S&P 500 +16.5%
Russell 2000 +12.4%.
However,
last six months
R2000 +20.9%
S&P 500 +16.3%
EAFE +7.6%.
If we take the easy, though mathematically unsound, shortcut of subtracting the last six months from ytd, to get a rough-and-ready approximation of the performance numbers from earlier in the year, we arrive at the following (again, in $US):
first five months
EAFE ~+18%
S&P ~0
R2000 ~–8.5%.
I find this split between first five months’ performance and last six unusually difficult to interpret, given that the macroeconomic climate is more or less the same in both periods. Nevertheless, I am concocting a story (what I think every investor either implicitly or explicitly does in figuring stuff out), to try to put some kind of meaningful framework around the difference.
Here goes:
—first five months The big story early in the year was the collapse of the $US. The new administration signaled it wanted to return to the economically disastrous pre-Volcker era of the 1970s, when the executive branch, not the Federal Reserve, had the last word on monetary policy. Inflation back then went through the roof, igniting a mad scramble for tangible assets. The gigantic mess that resulted from this took over a decade, and Treasuries at 20%, to bring to a halt.
This time around, the dollar has already fallen through the floor, as foreign central banks –up to their ears in US sovereign debt–move to at least hedge their currency risk, since their boatloads of Treasuries simply can’t be sold in any size without destroying the price.
Then, of course, there are the tariffs.
So the resulting weakness in the S&P 500 is no surprise.
What is a surprise, I think, is–the latest six months
After the initial shocks wore off to some degree, and the field of play became clearer, investors began to sort out individual winners and losers. Generally speaking, companies, no matter where they are domiciled, that have their costs in $US and their revenues in just about any other currencies, are winners; those in the reverse position are losers.
To take one example, an auto company in Japan or the EU that exports vehicles to the US for sale is in a very difficult competitive situation. Maintaining a stable dollar selling price means 15% lower revenue in the home currency. More than that, even if all a firm’s US sales come from vehicles completely made in the US, so that cost of goods isn’t rising in dollar terms, the home currency profits from the US subsidiary stand be 15% or so lower than they were last year. To the degree that the US subsidiary buys key components like engines from the foreign parent for cars assembled here (which even without tariffs are 15% more expensive than last year), its margins are squeezed. The US sub can raise prices to maintain margins, risking a loss of unit volume as consumers move to cheaper alternatives. Or it can eat the extra costs, shrinking it margins–so that the overall profit decline in the home currency is steeper than 15%.
In contrast, a US company that exports should be raking profits in. Again, a stable foreign currency selling price means 15% more in dollar revenues–and, assuming a stable cost environment, an operating profit that’s substantially higher than that. +30%?
So: US companies selling into foreign markets are minting money. Foreign companies selling into the US market are seeing either volumes or margins or both shrink.
As this dynamic becomes clear–it’s a situation domestic investors haven’t had to think hard about for a quarter century–it results in greater appreciation for a substantial class of domestic companies, as well as a falling appetite for foreign-based importers into the US. That is, a greater appetite for some US firms, a shrunken one for foreign counterparts–on the part of both domestic and foreign investors. A good example: sellers of luxury goods made in Europe.
October 2025
What I find most notable about September-October this year is the absence of the market decline caused by the need for mutual funds to square their books in preparation for the federally-mandated end of their fiscal year on Halloween. Before launching on my cruise-control explanation of this phenomenon, complete with unkind comments about financial media talking heads’ general cluelessness about this (and most everything else), it occured to me to check on the decree to which ETFs–which don’t have this tax issue (a wonky post for another day)–have replaced the mutual fund. The answer ChatGPT gave me was that half the money that was in mutual funds two or three years ago is now in ETFs!
This shift, I think, explains the lack of a market downdraft last month.
The sectoral breakout of the 2.3% gain the S&P 500 made in October is as follows:
IT +6.2%
Healthcare +3.5%
Consumer discretionary +2.4%
S&P 500 +2.3%
Utilities +2.0%
Communication services +1.7%
Industrials +0.4%
Energy -1.2%
Staples -2.6%
Real estate -2.7%
Financials -3.0%
Materials -5.1%.
With the exception of Healthcare, which had been a deep year-to-date laggard before October, the results are pretty much what we’ve been seeing throughout this year. They paint a picture of a domestic economy in slow but relentless deterioration–with, however, a world-leading IT sector, the bulk of which is not plant and equipment intensive and which, therefore, could relocate elsewhere at the drop of a hat.
I don’t pay much attention to Healthcare, the #2 performer last month. I’m thinking it has been boosted by takeover activity/speculation in the sector. But this isn’t an I’d-bet-money-on-it idea. However, I find myself holding a biotech name my Morningstar account (an excellent service, I think, and very reminiscent of what Value Line was a generation ago) told me about. And I’ve taken on a small amount of medical services exposure, as a defensive tactic.
September 2025
For me, maybe the most significant development of 3Q25, and of this past month as well, is that the S&P 500 has finally been outperforming the EAFE index. In fact, gap was significant–the S&P gained +7.4% over the past three months vs. +2.1% for EAFE. On the other hand, the S&P was +5% for the first half of this year vs. +17.6% for EAFE, so arguably some catchup should eventually have happened. Year-to date, EAFE still has a hefty lead, outpacing the S&P by +23.5% to +13.7%. The simplest explanation for the difference is the sharp decline in the US dollar since January. This isn’t the whole story, however. There’s been a huge boost to exporters–tech especially–from the currency decline, but they were likely to have stellar results even without this tailwind.
The sectoral breakout for the S&P in September is as follows:
IT +6.3%
Communication services +6.0%
Utilities +3.7%
Consumer discretionary +3.7%
S&P 500 +3.1%
Industrials +0.9%
Energy +0.6%
Financials +0.5%
Real estate -0.4%
Healthcare -0.8%
Staples -2.1%
Materials -2.8%.
The theme I see in these results is that the sectors tied most closely to the health of the US economy fared relatively poorly. The real oomph came from US-based tech companies that serve a worldwide market.
For the quarter as a whole, the results are as follows:
Communication services +12.3%
IT +12.1%
Consumer discretionary +10.0%
S&P 500 +7.4%
Utilties +6.6%
Energy +6.4%
Industrials +3.7%
Financials +3.3%
Materials +2.1%
Real estate +1.4%
Healthcare +0.8%
Staples -3.2%
Looking at the sectoral composition of the S&P, IT + Communication Services comprise just over 40% of the index, with Financials weighing in at a further 14.3% and Consumer discretionary at 10.6%. So those four sectors make up about 2/3 of the total.
The first two have the current advantage of substantial revenues outside the US and lots of costs in $US, at a time when the dollar is a relatively weak currency. This softness is a result of the global worry that Trump’s intention is to force interest rates lower as a way of servicing the nation’s growing debt. As long as investors think this way, it’s reasonable to figure the dollar will continue to be under pressure. The big worry about this tack is that it could lead to a repeat of the experience of the 1970s, when a similar strategy ended up creating runaway inflation that was so bad it needed a deep recession, with Treasury yields at 20%, and a decade of serious economic pain to get under control.
August 2025
Last month seemed to me more a story of consolidation and adjustment of relative sector valuations (laggards catching up, previous leaders sagging back a bit), rather than one of blazing new trails. What’s just as noticeable is that the EAFE index of foreign stock markets resumed its trend of outperforming the S&P.
Sector returns were as follows:
Materials +5.6%
Healthcare +5.3%
Communication services +3.6%
Consumer discretionary +3.4%
Financials +3.0%
Energy +2.9%
EAFE +2.7%
Real estate +2.0%
S&P 500 +1.9%
Staples +1.5%
IT +0.3%
Industrials -0.2%
Utilities -2.0%.
The Trump administration continued its norm-shattering behavior as well, its continuing attack on the independence of the Federal Reserve being the area of most stock market concern, I think. Hence the decline of the dollar by about a percent during August, accounting, I think, for the relative weakness of the S&P as a whole and the continuing relative strength (ex IT, this month) of companies with costs in dollars and revenues in stronger currencies.
September will be interesting to watch, in my view. Will we see the typical seasonal weakness that develops as mutual fund managers prepare their portfolios for the end of the fiscal year on Halloween? I don’t have a strong enough opinion to make alterations to my holdings, or even to offer my thoughts publicly. A lot depends, I think, on how powerful a moderating influence the ascendence of ETFs will be. My plan, if that’s not glorifying a vague-ish idea, is to buy my favorites on decline, should the next six weeks play out as the have in the past.
July 2025
July was another bounceback month for the S&P 500 and for the USD, as well. The least you can say about this is that the markets are never one-way streets. It’s always two steps forward, one step back, But also, during the first half of 2025, the dollar was crushed, as it appeared the president, wittingly or not, was maneuvering to ignite inflation that would allow the US to repay its sovereign debt in a debased dollar. What has become less clear over the past month or two, I think, is whether Mr. Trump has a coherent strategy in mind for much of anything or whether instead he’s morphing into an angry version of his predecessor, with fading brain power but also a much greater ability to rally voter support for his ideas.
July played out as follows:
IT +5.5%
Utilities +4.3%
Energy +3.4%
Consumer discretionary +3.0%
Industrials +3.0%
S&P 500 +2.6%
Real estate +1.6%
Materials +0.5%
Financials +0.5%
Communication services +0.2%
Healthcare -0.7%
Staples -1.9%
The clear winner for the month was IT, as AI-related firms, both hardware and software, have been demonstrating powerful profit growth. I really don’t see much of a pattern in the rest of the market. This either means there is no pattern (unlikely) or that what the market is manifesting is so far from my own thoughts that I can’t make up a story that explains what Mr. Market is doing.
The only other thought I have is that the market is shifting into a defensive mode because it sees:
–Trump manifesting late-Bidenesque memory-loss tendencies, but
–with a support staff that’s either anti-science or white-supremacist, or selected for their potential as spokesmodels/Apprentice contestants or their Botoxability. Not people you’d like driving the bus, but now with their hands more firmly on the wheel
–both parties have been filling Congress with yes-people concerned mostly with retaining their seats–not making waves. There are some exceptions, of course, but even they have, I think, been too accepting of the status quo.
Of course, this is what we as a nation have voted for.
2Q and ytd
The bounceback for the S&P vs the rest of the world that started in May continued into and through June. Not so the dollar, however, which continued its decline against other major world currencies. Two reasons for this: worries that Trump’s aggressive deficit spending to pay for tax breaks for rich donors will sooner or later end up in loss of faith in Treasuries; and the echoes of 1930s Germany in the terror-inducing actions of ICE. There’s a third, as well–that Trump faces no effective opposition from Congress in anything he’s planning, again an echo of 1930s Europe as well as of the financial collapse of the late 1970s in the US induced by monetary policy that was chronically too loose.
One arguably saving grace: although there’s no precise number, at least half the profits of the S&P 500 come from outside the US. So while the Trump administration has made average Americans (and the country as a whole) substantially poorer in world terms since the inauguration, the big names in the S&P have become substantially more well-off from the higher dollar value of their international operations, set against diminished-currency dollar-based central overhead.
We’re in legislative crunch time as I’m writing this. The Senate has apparently taken the House deficit-increasing spending bill and super-sized, with even more removal of public services for their constituents, particularly those who live in rural areas and/or who are less affluent.
The numbers:
ytd
EAFE +13.4%
Industrials +12.0%
Communication services +10.6%
Financials +8.4%
Utilities +7.8%
IT +7.7%
Staples +5.9%
S&P 500 +5.5%
Materials +5.0%
Real estate +1.7%
Energy +0.9%
Healthcare -2.0%
Consumer discretionary -4.2%.
For the first time in a very long while–since the boom associated with creation of the EU, I think–non-US stocks have very handily outperformed their domestic brethren. It isn’t so much that the stocks themselves have moved strongly upward this year. Rather, it’s that the dollar has fallen through the floor since the inauguration.
2Q25
IT +23.5%
Communication services +18.2%
Industrials +12.6%
Consumer discretionary +11.3%
S&P 500 +10.6%
EAFE +9.4%
Financials +5.1%
Utilities +3.5%
Materials +2.6%
Staples +0.5%
Real Estate -1.0%
Healthcare -7.6%
Energy -9.4%
May 2025
May was a bounceback month for the S&P 500, which had underperformed the rest of the world’s major stock markets by a mind-boggling 16%+ in the first four months of this year. A substantial part of that gap comes from the plunge in the foreign currency value of the dollar, which has fallen by almost 10% since the inauguration. “Bounceback” might not be the best word, though, since the S&P only gained 40 basis points on EAFE (Europe, Australasia and the Far East, the commonly-used index to measure non-US developed country markets) in May.
I find it hard to figure out how much of the decline is due to the damage the Trump anti-immigrant agenda is doing to domestic economic growth and how much to the possibility that his “big, beautiful bill” will ultimately force holders of Treasury debt to begin to think the previously unimaginable–that the US could conceivably default on its Treasury debt. The two issues are linked, of course. But the potential for a blowout in the budget deficit is the much more obvious issue–and there is evidence that Treasury bond buyers are already pricing them as if the country is no longer an A-grade credit. For now, it probably doesn’t make a lot of difference which we pick. If a consensus were to coalesce around the potential deficit as the main issue, though, I think the harm to the currency, and to domestic financial markets, would be far greater.
The S&P by sector in May:
IT +10.8%
Communication services +9.6%
Consumer discretionary +9.4%
Industrials +8.6%
S&P 500 +6.2%
Financials +4.2%
Utilities +3.4%
Materials +2.8%
Staples +1.7%
Real estate +0.9%
Energy +0.3%
Healthcare -5.7%
The winners so far this month/year are companies that have costs in $US and revenues outside the US. Even better if they deal in intellectual property or other businesses that can easily be shifted to Canada or elsewhere outside the US if Trump’s apparent replay of 1930s Germany develops legs.
One sector that pops out to me on the list above is Consumer discretionary. Even after this month’s bounce, it’s still almost 7% below the S&P (which is +0.5% for 2025 so far), ytd, (For what it’s worth, EAFE is +17.5%). But the move upward in May says to me that investor confidence is strong enough that bottom fishing is alive and well in the market.
Industrials, which were in the minus column ytd before a surge this month, is another. I’m not sure why the jump. By and large, “Industrials” mostly make stuff that Consumer discretionary sells. Bottom fishing? The idea that Industrials will benefit directly from tariffs on foreign competitors or that some of them will be acquired by foreign firms wanting to continue to cater to the US market?
The stock market has clearly worked out that “drill, baby, drill” and “tariffs, baby, tariffs” are antithetical ideas and that the former is going to lose out to the latter. As is the case with farmers, US oil companies, especially small/ medium-sized drillers, another set of big Trump backers, are being hurt the most.
April 2025
For an investor inside the US, and concerned with stock market results in USD terms, April was a catch-your-breath month. The S&P 500 was relatively stable, as were all industry groups ex Energy. Yes, 1Q25 GDP for the US was negative. That’s partly the result of technical arcana, partly businesses preparing for the unnecessary damage that tariffs will bring, partly resignation that neither national political party has the gumption to stop the economic disaster the administration is set to inflict on the country.
The only real stock market indicator is the sharp decline of the oil and gas sector, as the falling oil price signals a weak economy to come.
For an investor outside the US, concerned with home currency results, the market signals are considerably less favorable. The gold price in dollars continues to rise, and the foreign currency value of the dollar continues its post-inauguration plunge. I don’t think that it’s that the US president doesn’t have such a great resume–criminal record, business bankruptcies, evidence of Bidenesque cognitive decline… After all, he’s been elected twice. I think it’s just as much that, other than the Fed, no one, not the Congress nor the judiciary, have the ability/courage to rein him in.
Personally, I think holding gold isn’t the best idea. But I imagine the larger part of capital flight from the US will be reflected in a continuing decline in the dollar.
April for the S&P 500 played out as follows:
IT +1.6%
Communication services +1.4%
Industrials +0.2%
Staples +0.1%
Utilities +0.05%
Consumer discretionary -0.1%
S&P 500 -0.8%
Real estate -1.3%
Financials -2.2%
Materials -2.2%
Healthcare -3.8%
Energy -13.7%.
For Energy, the issue is that as tariffs slow the world economy, the big question–as yet unanswered–is how and by whom oil and gas production is going to be shut down. Ultimately, it will be the highest-cost producers (think: US shale). The Healthcare and Materials issues are also, I think, a function of tariffs. The issue with the latter, I think, is what ingredients are made in China.
All in all, the fact that the currency is taking the hit so far for Trump’s shaping the domestic economy in the way he shaped the Atlantic City casino industry is good for the S&P. Unclear how long this will last. To the rest of the world, however, the Trump-shaped US has already lost a tenth of its stock market value. Something to keep in mind, although not, I fear, a big near-term plus.
1Q25
The first quarter is in the books. It also relatively closely parallels the time that President Trump, whom a majority of voters selected to be president again, has been in power.
The stock market results aren’t pretty. After a couple of strong honeymoon weeks, the markets began to turn south. As the quarter progressed, and as the new administration’s leadership and economic direction began to unfold in detail, the decline steepened–as a comparison of the S&P’s performance in March vs. the year to date shows.
In fact, the raw S&P 500 index results don’t in themselves convey the entire story, Ytd, the S&P is down by a bit less than 5%. Compared with the stock markets in the rest of the developed world, as measured by the MSCI EAFE index, however, this is the worst relative performance of the S&P in the past third of a century.
In addition, much attention has been focused on the dramatic selloff of the global-oriented IT industry. The domestic-concentrated Consumer Discretionary sector is the worst performer for the quarter, however, signaling that the stock market expects Trump’s decision to start a trade war by levying import taxes on foreign goods brought into the country will hit consumers worst of all, presumably tipping the country into recession.
I don’t think that the country expected what appears to be the intentional cruelty in removing non-citizens from the country, but otherwise the outline of Trump’s program was no surprise–through tariffs raise the cost of living for ordinary Americans and put economic growth into neutral/reverse by deporting undocumented or insufficiently documented workers.
The S&P performance for March, by sector, is as follows:
Utilities +0.1%
Healthcare -1.9%
Staples -2.8%
Materials -2.9%
Real estate -3.0%
Industrials -3.7%
Energy -3.8%
Financials -4.3%
S&P 500 -5.8%
Communication services -8.4%
IT -8.9%
Consumer discretionary -9.0%
1Q25 played out as follows:
Energy +9.3%
Healthcare +6.8%
Staples +4.6%
Utilities +4.2%
Financials +3.1%
Real estate +2.7%
Materials +2.3%
Industrials -0.1%
S&P 500 -4.6%
Communication services -6.4%
IT -12.8%
Consumer discretionary -12.8%.
To my mind, the key sectors here are Staples vs, Consumer discretionary. The former (a key defensive) outperformed the latter (a clear cyclical) by more than 17 percentage points. The erosion has been steady throughout the quarter. At some point, however, the spread is likely to stabilize. Under normal conditions, one would expect that investors would regard the downturn as cyclical and would therefore be willing to begin to support Consumer discretionary long before economic recovery became plausible, based on notions of long-term value. Hard to know what will happen this time, however, given that economic growth doesn’t appear to be a high Washington priority at the moment.
Odd to say, I’ve been much more deeply involved in managing my own money than usual over the period since Trump’s presidential win–to the neglect of my Keeping Score page. Hopefully, I can take care of both from now on, since I think we’re in an intellectually very interesting and tricky period. As a citizen, though, I fear we’re looking at the early stages of another Atlantic City casino-like disaster, only writ much larger. This time, also, there’s no third party to trick into bailing the country out.
The numbers show Value handily outperforming Growth and, for the first time in a long while, non-US listed stocks (the Morgan Stanley Capital International ex US index) outdoing domestic names. In my view, it’s not so much that the rest of the world is in such great shape. It’s that the Republican plans appear to be so toxic. Remember, too, that earnings from US-listed companies are at least 50% sourced outside the country. If we look at the Russell 2000, which is much more US-centric, and which therefore may be a better read on investor sentiment about regions of the world, it has dropped by about 3% so far in 2025.
The figures:
February 2025
Staples +5.6%
Real estate +4.1%
Energy +3.3%
MSCI ex US +1.4%
Healthcare +1.4%
Financials +1.2%
Utilities +1.2%
Materials -0.2%
S&P 500 Value -0.2%
IT -1.4%
S&P 500 -1.4%
Industrials -1.6%
S&P 500 Growth -3.0%
Russell 2000 -3.0%
Communication services -6.3%
Consumer discretionary -9.4%
year to date:
Healthcare +8.0%
Financials +7.8%
Staples +7.6%
Real estate +5.9%
Materials +5.4%
Energy +5.4%
MSCI ex US +5.2%
Utilities +4.1%
Industrials +3.3%
S&P 500 Value +3.0%
Communication services +2.1%
S&P 500 +1.2%
S&P 500 Growth -0.4%
IT -4.3%
Russell 2000 -5.0%
Consumer discretionary -5.4%
To be fair, IT had a fabulous run in 2024 on news/speculation about AI. As a result, the US has taken on the appearance of many other smaller markets that are dominated by one or two, usually multinational, names. The US mega-names have begun to sell off. This is mostly on a valuation basis, in my view, although there are hints that earnings acceleration for firms like Nvidia is peaking, making them somewhat less attractive. But none of that explains the hole in the ground that has opened up and eaten Consumer discretionary. Nor does it explain why the US-centric, smaller-cap Russell 2000 has been pummeled since the inauguration.
October 2024, a bit belated
I’ve been traveling for the past week-plus, so I’m just getting to a recap of October now.
In the past, when mutual funds, not ETFs, dominated the retail investing universe, September and the first half of October were typically relatively weak. That’s because managers were typically selling clunkers in advance of the end of the mutual fund tax year on Halloween. To a limited degree, this was also to meet the legal requirement to distribute as dividends all realized gains (so that holders would have to pay income tax). But the large majority of holders would typically automatically reinvest, so the actual need for cash wasn’t that big.
The rise of ETFs has changed this dynamic significantly, since these popular vehicles usually “sell” by transferring blocks of stock, along with those blocks’ tax basis, to the brokerage houses that make a market in the ETF’s shares. So they don’t generate distributable capital gains. (One exception may the the ARK funds, whose staggering underperformance– -65% since its high point at the start of 2021 vs. +60% for NASDAQ — has presumably made harvesting lax losses inside the ETF a prime focus.)
October this year was a case where the sector breakout looks a lot uglier than the overall result of a loss of 1.0% for the S&P. That is,
Financials +2.6%
Communication services +1.8%
Energy +0.7%
S&P 500 -1.0%
IT -1.0%
Utilities -1.0%
Industrials -1.4%
Consumer discretionary -1.6%
Staples -3.0%
Real estate -3.5%
Materials -3.6%
Healthcare -4.8%
I find it hard to see a pattern in these results. Financials are a clear winner, but similar interest-rate sensitives like Real estate and Utilities are weak. Tech-ish sectors, IT + Communication services, are both around the market, with the latter’s strength cancelling out the former’s slight relative weakness. Materials, very cyclical, and Healthcare, very not, are distinct laggards along with Staples (defensive) and Real estate (arguably aggressive, and arguably a substitute for property-lending banks).
September and 3Q 2024
It’s been an impressively strong nine months for stocks in 2024. The S&P 500 is up by 20.8%, year to date, and the Nasdaq by 25.8%. IT led the market during the first half with a return of close to 30%, but has, understandably, flattened since. The baton has been passed to more traditional sectors, as the 3Q figures below show. Three themes have emerged:
–Utilities back from the dead, as AI-driven demand for electricity soars
–plain vanilla economic growth, and
–back-from-the-dead (we hope) sectors like Real Estate and the banks whose lending has made possible the construction of urban skyscrapers (think: Hudson Yards in NYC) whose less rosy post-pandemic prospects have rendered office building loans (held by the banks) questionable. If form holds true, the major issue will be that landlords cut rents to the bone to fill their shiny new buildings, emptying older ones whose borrowings become the more serious problem.
September
Consumer discretionary +7.0%
Utilities +6.4%
Communication services +4.5%
Industrials +3.3%
Real estate +2.8%
IT +2.5%
Materials +2.4%
S&P 500 +2.0%
Staples +0.6%
Financials -0.7%
Healthcare -1.8%
Energy -2.8%
3Q2024
Utilities +18.5%
Real estate +16.3%
Industrials +11.2%
Financials +10.2%
Materials +9.2%
Staples +8.3%
Consumer discretionary +7.5%
Healthcare +5.7%
S&P 500 +5.5%
IT +1.4%
Communication services +1.4%
Energy -3.1%
August 2024
market broadening continues
The predominant focus of the stock market from the start of the year into the early summer was the tech sector. The explosion of interest in AI is the most likely reason for this. But tech is a global sector and the prevailing market opinion in the first half was that secular change was a better thematic bet than playing a favorable turn in the domestic business cycle. Tech was the obvious place to take shelter from the lackluster performance of the overall US economy. Finally, although not its key favorable attribute even today, tech is also a potential hedge against the immensely destructive economic program Trump has plans to implement if elected.
As sector results have been showing for the past three months, including this one, Wall Street appears to be starting to turn the page. This is mostly an issue of relative valuation, I think. But we may also be starting to see signs that the negative news about the pandemic-induced reshuffling of the domestic economy has been fully (or more) discounted. The counter to the latter thought is that the recent outperforming sectors have mostly been defensive ones, like Staples, Healthcare, Utilities and Financials.
August played out as follows:
Staples +5.8%
Real estate +5.6%
Healthcare +5.0%
Financials +4.4%
Utilities +4.3%
Industrials +2.7%
S&P 500 +2.3%
Materials +2.2%
Communication services +1.2%
IT +1.2%
Consumer discretionary -1.1%
Energy -2.3%.
July 2024
I’m writing this on August 6, so I’m going to show both July performance and 3q to date. What I find interesting in doing so is in separating the sectors where the downdraft of this week made a difference in sector performance order from those where the decline didn’t.
July
Real estate +7.1%
Utilities +6.8%
Financials +6.3%
Industrials +4.6%
Materials +4.1%
Energy +3.1%
Healthcare +2.3%
Staples +1.8%
Consumer discretionary +1.6%
S&P 500 +1.1%
IT -2.1%
Communication services -4.2%
Q to date, through Aug 6
Real estate +8.1%
Utilities +6.8%
Staples +2.3%
Healthcare +1.1%
Financials +0.8%
Materials +0.2%
Industrials +0.1%
S&P 500 -4.0%
Energy -4.4%
Consumer discretionary -7.2%
Communication services -7.2%
IT -9.8%
Several things strike me:
–Energy and Consumer discretionary join tech as underperformers and the clunkerishness of both IT and Communication services gets worse
–Real estate and Utilities stay atop the board. Dividends are an essential feature of both, but given the exposure of the RE sector to office space, I’m a bit surprised by its buoyancy. Is all the bad office space news out?
–Arguably Financials also have defensive qualities and real estate exposure, but that group has slipped in a way RE hasn’t. Is this worries about the currency and bond trading desks?
–Healthcare, which I know nothing much about and am not a big fan of, looks relatively cheap to me (and maybe a place to hide for a while)
–the most cyclically sensitive of the sectors, Materials, Energy and Industrials, have slipped a bit in the pecking order but not by enough, in my view, to be giving signals of an impending economic downturn. This says to me that the selloff is more about stretched valuations in the techish sectors than a signal of an impending economic downturn. Of course, the upcoming weeks–and the end of vacation season– will tell us a lot more.
June, 2Q and first half 2024
The opening six months of this year were the best of times if you held the NASDAQ (+20.0%) or the S&P (+14.5%), not so much if you held the Russell 2000 index of small cap, US-centric stocks (+1.7%) or the Dow, a nineteenth century brand name searching (in vain, in my view) for contemporary investment relevance (+3.7%).
The industry breakout for each of these periods is as follows:
June 2024
IT +9.3%
Nasdaq +5.4%
Consumer discretionary +4.8%
Communication services +4.7%
S&P 500 +3.5%
Healthcare +1.8%
Dow Jones Industrials +1.4%
Real estate +1.3%
Staples -0.5%
Russell 2000 -0.6%
Financials -1.0%
Industrials -1.1%
Energy -1.4%
Materials -3.3%
Utilities -5.6%.
What really strikes me about this array, other than that multinational firms are carrying the day, is that half the sectors are in the minus column. Also the case for 2Q24.
2Q24
IT +13.6%
Communication services +9.1%
NASDAQ +8.3%
S&P 500 +3.9%
Utilities +3.9%
Staples +0.7%
Consumer discretionary +0.5%
Healthcare -1.4%
Financials -2.4%
Real estate -2.8%
Energy -3.1%
Industrials -3.3%
Russell 2000 -3.6%
DJI -4.2%
Materials -4.9%.
ytd 2024
IT +27.8%
Communication services +26.1%
NASDAQ +20.0%
S&P 500 +14.5%
Financials +9.3%
Energy +9.1%
Utilities +7.6%
Staples +7.6%
Industrials +7.0%
Healthcare +6.9%
Consumer discretionary +5.2%
DJI +3.7%
Materials +3.1%
Russell 2000 +1.7%
Real estate -4.1%.
To summarize, the first half was all about large-cap stocks, mostly in tech (and mostly focused on AI), that address a global audience. Everything else was left in the dust.
In more abstract terms, the first half was much more about concept than about valuation.
It seems to me that the valuation differential between winners and losers is so wide that there has got to be some catching up by laggards. Some of the latter–Real estate and Financials come to mind–have problems of their own that are deep enough to either reduce or eliminate the possibility of their participating in a potential rally among first-half laggards. I find myself turning toward retail (no surprise there) and healthcare (kind of a shock, since this is an area I know close to nothing about). If I’m going to do the latter, the safest route is through a sector index ETF, I think.
There’s such a huge spread between tech and the rest of the market, and the performance of tech in absolute terms has been so strong, that it’s hard to see this area doing better in the aggregate than treading water for some time–maybe even for the rest of the year. And if it turns out to be correct that we’ll be in a valuation-driven market for a while, Industrials might not be a bad place to be. A key signal of this would be an upturn in the Russell 2000.
May 2024
The S&P 500 gained a hefty +4.8% for the month of May. The story was basically all technology. Results by sector are as follows:
IT +10.0%
Utilities +8.5%
Communication services +6.6%
Real Estate +5.0%
S&P 500 +4.8%
Materials +3.1%
Financials +3.0%
Staples +2.3%
Healthcare +2.2%
Industrials +1.4%
Consumer discretionary +0.2%
Energy -1.0%.
We know that Energy, the only sector in negative territory for the month of May, dances to its own drummer. So there’s not much real information there.
On the outperformance side, the story was all IT and the IT-adjacent Communication Services. Big winners in the latter sector included META and NFLX. The former, of course, was driven by the AI story, with chipmaker NVDA gaining a third in value after reporting earnings far in excess of consensus estimates amid raging demand for its offerings.
Among the smaller outperforming sectors, Utilities is showing continuing strength, based on the idea that the EV transportation revolution will revive electricity demand (this despite Trump’s apparent promise to oil giants to destroy the EV sector in return for a $1 billion dollar payment to his campaign). Real estate has had brutal underperformance so far in 2024, driven by fears that we’re on the downside of the office space cycle and that the shrinkage in demand for space will be unusually severe this time around. The sector is still down by -5.4% ytd, in a market that’s up by +10.6%. So its May performance is best viewed, I think, as an early attempt to form a bottom. Personally, I don’t care to bet on whether the try will be successful.
April 2024
a market shifting into neutral…
…for now, anyway. I don’t think this means the economy is downshifting into neutral as well. Wall Street strategists, however, seem to have convinced themselves that real GDP growth, which ended at +1.6% for 1Q24, presages a further deceleration that would result in the Fed cutting short-term interest rates from the current 5%+ for Fed Funds. Consider, though, that real GDP growth comes either from having more workers or having workers be more productive (meaning, broadly speaking, investment in education and in more efficient machinery). If so, a country whose population is growing at less than 1% a year, which is not hanging out the welcome sign for foreign workers, and which is anti-education in many places should arguably consider that +1.6% the economy is roaring (if that’s the right word) ahead at close to its maximum long-term potential. This would imply that we’re not really in need of monetary easing.
stock market implications?
In the short term, this depends, I think, on how much belief that interest rates need to go lower is already built into today’s prices–meaning how much enthusiasm has to be extracted from the market if/as the reality turns out to be that short rates don’t need to fall right away at all.
There isn’t much we can do about this, other than to do our best to minimize the damage our portfolios suffer as we wait for prices to stabilize. In my world, this translates into looking long and hard for the turkeys that inevitably work their way into almost everyone’s portfolio–certainly, into mine–dump them now, and look for better stocks that get damaged unjustly as market participants reverse their bets that rates will fall. This assumes, of course, that my reading that in the typical stock market dance of three steps forward, then one step back, we’re in the latter phase. So, a necessary move down (to complete the dance move), somewhat painful, but maybe short (I wrote “typically” first, then changed it, for two reasons: I don’t want to be in the counterproductive business of calling short-term market moves; also, who really knows.)
Sector performance for April, a month when the S&P declined by 2.6% (I also listed sector weightings as a percentage of the S&P market cap, for no particular reason other than I find it interesting to remind myself which sectors really matter and which –like Real Estate–don’t) :
sector as % of S&P500
Utilities 2.2% 2.3%
Energy 2.1% 4.0%
Staples -0.7% 6.1%
Communication services -0.7% 9.1%
Consumer discretionary -1.7% 10.4%
Industrials -2.0% 8.9%
S&P 500 -2.63%
Materials -2.9% 2.5%
IT -3.4% 29.7%
Financials -3.4% 13.3%
Healthcare -5.1% 12.5%
Real estate -6.9% 2.4%
Before analyzing, let’s take Financials and Real estate out of the mix. The issue for both is the same, I think–office buildings, and the commercial real estate that surrounds them. Conventional wisdom is that office buildings are the best kind of real estate to own. Economic cycles may cause a temporary dip in occupancies, but prime office space not only recovers quickly but speedily reaches new heights in rental income. Therefore, don’t look to long/hard at individual properties, just lend away. The obvious (now, at least) flaw in this thinking is that the pandemic may have changed business practices like coming to the office every day, for good. A second, less obvious but maybe just as important, is the degree to which otherwise bad property loans have, until now, been bailed out by the secular trend in place since the early 1980s of ever lower interest rates.
So, defensives like Utilities and Staples at the top of the list, and the more economically sensitive Materials and IT toward the bottom. The name Industrials conjures up images–for me at least–of mammoth machines and molten steel. In reality, the members of this sector are mostly suppliers to Consumer discretionary, and so act as a somewhat higher-beta version of CD.
Don’t ask me about Healthcare. I’m not a fan and know nothing about that sector.
March 2024
the Magnificent Seven
I’m a fan of the Seven Samurai, as well as of the Hollywood remake, the Magnificent Seven. I’m not anywhere near as enthused about the B of A marketing use of the name to clump together seven not so similar large cap US stocks that performed exceptionally well in 2023. The strongest connection between members that I see is the crucial importance of China for both AAPL and TSLA.
So far in 2024, it’s more like the Magnificent One, NVDA.
1Q24 performance:
NVDA +86%
META +39%
AMZN +19%
MSFT +13%
S&P 500 +10.2%
GOOG +8.5%
AAPL +8.5%
TSLA -30%.
An equal-weight portfolio of the Seven would have been up by +21%. Ex NVDA, the remaining six gained an average of about 9%. That’s the way I read the results. Of course, one might equally well focus on TSLA, the real clunker in the group, which not only went down in a rising market but underperformed the S&P by 40 percentage points. Erase it and the remaining six don’t look so bad.
March 2024 performance
NVDA +13.6%
GOOG +10.1%
S&P 500 +3.1%
MSFT +1.7%
AMZN +1.7%
META -1.0%
AAPL -5.0%
TSLA -12.5%
This is the freshest data we have. The pattern is pretty much the same as for the quarter as a whole, with NVDA outperforming and TSLA putting a big dent in overall group performance. In any event, most seem to be losing considerable steam so far in 2024.
March 2024
Energy +10.4%
Utilities +6.3%
Materials +6.2%
Financials +4.7%
Communication services +4.3%
Industrials +4.3%
Staples +3.1%
S&P 500 +3.1%
Healthcare +2.2%
IT +1.9%
Real estate +1.1%
Consumer discretionary +0.01%
This is more or less what the stock market looked like in the midst of a cyclical domestic economic upturn in the days before tech became as all-important as is today. In addition, all eleven sectors ended up in the plus column. Two possible outliers: Consumer discretionary would typically be in the outperformer column and Energy would arguably be temporarily in the doldrums, because the northern winter heating season is over and the summer driving season won’t be in full swing for another month or two. Still, March performance suggests that Wall Street is beginning to pay more attention to sectors that will benefit from a cyclical economic upturn.
1Q24
Communication services +15.6%
Energy +12.7%
IT +12.5%
Financials +12.0%
Industrials +10.6%
S&P 500 +10.2%
Materials +8.4%
Healthcare +8.4%
Staples +6.8%
Consumer discretionary +4.8%
Utilities +3.6%
Real estate -1.4%.
Healthcare, Consumer discretionary and Real estate are the only sectors to underperform both in March and for 1Q24 as a whole. For Real estate, I think this is mostly the crisis in office space, regarded in the pre-pandemic world as the safest real estate bet, but being hit both by overbuilding and work-from-home. Healthcare is a relatively defensive sector–and one I’ve survived for 40+ years not knowing much about. Consumer discretionary is more of a puzzle. Two of its top five names, TSLA and MCD, are down sharply so far this year. More generally, my guess is that the shift to post-pandemic living is counteracting some of the usual bounce back this sector shows in expansions.
February 2024
February was a power-packed month, with the S&P 50 gaining +5.2% in four weeks plus Leap Day. That’s maybe half the return one might expect in a year, and comes despite (because of?) the wall of worries thee market faces–Congress, Ukraine, Gaza, and the presidential race which pits a sitting president who seems to have lost something off his fastball and the challenger, a dim bulb who promises to institute a white supremacist theocracy if elected. The latter appears to be leading. Nevertheless, all 11 S&P sectors were in the black for the month.
The returns are are follows:
Consumer discretionary +8.6%
Industrials +6.9%
Materials +6.3%
IT +6.2%
Communication services +5.7%
S&P 500 +5.2%
Financials +4.0%
Healthcare +3.1%
Energy +2.6%
Real estate +2.5%
Staples +2.1%
Utilities +0.5%.
The message I see in these numbers is that the domestic economy is robust and likely growing at a faster clip than the consensus realizes. It’s also worthy of note that despite all the positives surrounding the disruptive potential for AI, the IT industry overall is closer to the middle of the pack rather than being at the top of the list.
January 2024
Election years are traditionally good ones for the stock market. Old-school thinking is that incumbent politicians arrange for an extra boost to economic growth in the months leading up to the vote, on the idea that this will enhance their chances of being reelected. Once they’re safely back in office, they pull back the stimulus, causing the stock market to sag in the first full year of the new term.
Conventional Wall Street wisdom is to ignore the politics and concentrate on sector-by-sector and company-by-company prospects. To my mind, that remains sound advice.
Two caveats, though: the party of Lincoln and Eisenhower will presumably have as its candidate the man who attempted the violent overthrow of the government after he lost the last election; and, personally, I continue to be shocked by the intentional human rights cruelty emanating from places like Texas. The ultimate question I see is whether anyone would trust these people–and ultimately, by extension, the US stock market–with their savings. Ask a student at Trump University, or a stockholder in Trump’s New Jersey casino company what they think (assuming you can find anyone willing to admit to either).
Put a different way, real GDP growth comes from expansion in the work force and productivity growth (which is a function of better education and/or increasingly sophisticated tools). Ex immigration, the US working population is expanding, but at only about 0.5% per year. So that’s not much help. Arguably, book banning sends education into the minus column. So the gloomy end game for current Republican policies is to turn the US into the UK or Japan–economic irrelevance, weak currency, booming tourism from more affluent parts of the world.
Scary stuff, and presumably a long way off. But at some point, investors will begin to worry.
The January stock market played out as follows:
Communication services +4.8%
Materials +3.9%
IT +3.9%
Financials +2.9%
Healthcare +2.8%
S&P 500 +1.6%
Staples +1.4%
Energy -0.5%
Industrials -0.9%
Utilities -3.1%
Consumer discretionary -3.6%
Real estate -4.8%.
“Treading water” is how I’d describe this performance. Defensives like Staples and Utilities, which were the stars of 2022, continue to lag the index. Also, Materials, which typically does best in an economic boom, was strong. But this may simply be bouncing back a bit from a relative performance drubbing in 2023. In addition, there’s little sign among retail stocks that consumers in general are feeling flush enough to begin to trade up from recession beneficiaries like Walmart.
My overall sense is that investors are spending much more time trying to decipher the direction of the bond market than in handicapping stocks. I’m not sure why. My take on the current market is that the kind of contractionary inventory adjustment (in a very loose sense of inventory–that would include workers of all stripes) back to post-pandemic normal that we could see clearly in retail last year is spreading into other sectors of the economy. Maybe equity investors sense this is so and are content to watch the process unfold from the sidelines.
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HAPPY NEW YEAR!!!
December 2023
The final month of the year was the second positive one in a row, as the market turned from politics–both geo- and local–to focus on interest rates and inflation. December performance for the S&P 500 by sector was as follows:
Real estate +8.0%
Industrials +6.8%
Consumer discretionary +6.1%
Financials +5.2%
Communication services +4.8%
S&P 500 +4.4%
Materials +4.3%
Healthcare +4.1%
IT +3.8%
Staples +2.4%
Utilities +1.7%
Energy -0.2%
For once, I don’t have much to say about December performance per se. Every sector except Energy was in the plus column, though. I continue to be struck, as is the S&P, that the oil price continues to be so weak during what is usually a period of seasonal strength. The other sectors have the feel of players shuffling their cards to get ready for the new year. If so, the message is that valuation will count for a lot more than concept.
4Q23
Real estate +17.66
IT +16.9%
Financials +13.4%
Industrials +12.5%
Consumer discretionary +12.2%
S&P 500 +11.2%
Communication services +10.7%
Materials +9.1%
Utilities +7.6%
Healthcare +5.9%
Staples -2.2%
Energy -7.8%.
Energy again at the bottom of the pile. Otherwise, the same big interest-rates-have-peaked wave as in December.
full-year 2023 vs. full-year 2022
IT +56.3% -27.6%
Communication services +54.4% -36.2%
Consumer discretionary +41.0% -36.2%
S&P 500 +24.2% -19.4%
Industrials +16.0% -5.5%
Materials +10.2% -12.3%
Financials +9.9% –10.5%
Real estate +8.3% -26.1%
Staples +4.8% -0.7%
Healthcare +0.3% -2.0%
Energy -4.8% 64.6%
Utilities -10.2%. 1.6%
First, a note about basic arithmetic. If in year one, you’re down by 20%, it takes an up 25% in the following year to get you back to breakeven. That’s what has more or less happened with the S&P 500 over the past two years–breakeven. Over the same span, Consumer discretionary is down by about 10%; Communication services is down a tiny bit; and IT is up, but only by 13%. The big winner is energy, up by 57% over 2022-23. IT is #2 and Industrials (which is mostly suppliers to Consumer discretionary) #3. The real train wreck is Real estate, which is off by 20% over 2022-23, even after its 4Q23 spurt.
All this says to me that any argument, positive or negative, based on the fabulous gains of 2023 in growth names has to be taken with several grains of salt.
At the start of every year I tend to assume that the overall stock market will go sideways. For 2024, I don’t see any compelling macroeconomic reason to think events will play out substantially better or worse. So the year will be made or broken in performance terms, as it almost always is, by individual stock selection.
November 2023
Another good month for the S&P 500, in fact surprisingly so. One might argue that this is partly seasonal, caused by fiscal year-end selling by mutual funds. Maybe, but to me it now looks more like a run-of-the-mill downtrend that began in August came to an end in late October. This would be based on the market’s new-found belief that inflation has begun to decline (therefore interest rates have peaked) and the fact that corporate results are generally coming in better than expected.
Sector performance was as follows:
IT +12.7%
Real estate +12.3%
Consumer discretionary +10.8%
Financials +10.7%
S&P 500 +8.9%
Industrials +8.5%
Materials +8.1%
Communication services +7.8%
Healthcare +5.2%
Utilities +4.5%
Staples +3.7%
Energy -1.7%.
To my mind, the most unusual result came from Energy, which isn’t showing any strength despite uncertainty in the Middle East and the approach of the Northern Hemisphere winter, which usually boosts crude oil prices.
An almost 9% jump in the S&P 500 is also worthy of note. That’s a big number. Defensives like Healthcare, Utilities and Staples also lagged pretty considerably.
Finally, Real estate and Financials, both sectors driven to a considerable degree by changes in bond prices, seem to be suggesting that Wall Street is less concerned than it has been about the damage higher interest rates does to their profits and asset values.
My general sense is that we’re going to be in a sideways market for a while, where +/- earnings surprises will determine performance. The opening weeks of December will give us further evidence about whether this will be the case–and, if not, which way to adjust a portfolio’s risk profile.
October 2023
October was a most peculiar month. Of course, maybe we say this about whatever month we happen to be in. The US, for example, has a new Speaker of the House, about whom the country knows next to nothing, despite the fact that he’s next in line to assume the presidency after Kamila Harris. He appears, however, among other things, to be one of the staunchest supporters of the Trump attempt in 2020 to overthrow the Federal government; to believe in a literal reading of the Bible, although it isn’t clear he’s conversant in any of the languages in which it was written; and to be opposed to medical care for pregnant women under almost all circumstances. Nor do we know how he feels about a possible default of the federal government on sovereign debt later this month.
Then there’s the complex situation in Israel, which has resulted in thousands of deaths so far, with many more possibly in prospect.
So maybe it’s more surprising that the loss the S&P 500 racked up in October is so small, rather than there’s a loss in the first place.
By sector, the S&P played out as follows:
Utilities +1.2%
IT -0.1%
Staples -1.4%
Communication services -2.0%
S&P 500 -2.2%
Financials -2.6%
Real estate -2.9%
Industrials -3.0%
Materials -3.2%
Healthcare -3.3%
Consumer discretionary -4.5%
Energy -6.1%.
What jumps out to me in these returns is what a mixed bag the outperformers are. Two sectors, IT and Communication services, typically shine in up markets and trail the pack when index returns are negative. Yet both sectors delivered index-beating returns last month. Utilities, on the other hand, are as pure a group of defensives as one can get, as are Staples, only a bit less so for US holders, given their large exposure to foreign economies/currencies.
Consumer discretionary took what appears on the surface as an unusually bad drubbing, but the key reason I see is that many managements seem to have read white-hot demand during the pandemic as being more or less normal, and so failed to prepare investors–or the firms they captain–in advance for the slowdown in revenue and profit gains that is now under way. At the same time, Wall Street seems to me to have taken at face value the rosy picture painted by company managements, despite its implausibility. At least, that’s how I read the violence with which trading bots have thrashed the stocks of firms whose actual earnings are falling short of Wall Street, company management-hinted-at, guesses.
September 2023
At one time in the dim past–and at the start of my career as an investor–the really ugly time of the year for stocks began in November and carried through until mid-December. That’s because the most powerful investment organizations back then were banks and insurance companies, whose accounting year ended on New Year’s Eve, and who did their year-end tax selling in November /December.
The passage of the Employment Retirement income Security Act (ERISA) in 1974, the end to fixed (i.e. VERY high) brokerage commissions and the rise of discount brokerage firms like Fidelity created an enormous expansion in the availability of investment advice and a huge drop in costs. The key vehicle individual investors began to use was the mutual fund, whose total assets quickly dwarfed those of banks and insurers.. Mutual funds end their fiscal years, under government mandate, on Halloween. This shifted the bulk of year-end tax selling to September/October.
We may be in the early days of another industry transformation with the rise of the Exchange-Traded Fund (ETF), which has the same fiscal year as the mutual fund but doesn’t have the same tax issues.
In any event, S&P 500 performance by sector for the month of September is as follows:
Energy +2.5%
Healthcare -3.1%
Financials -3.3%
Communication services -3.3%
Staples -4.8%
S&P 500 -4.9%
Materials -5.1%
Utilities -5.8%
Consumer discretionary -6.0%
Industrials -6.1%
IT -6.9%
Real estate -7.8%
Ongoing problems with commercial real estate explain the bottom of the list performance of this sector. The others seem to me to have a mild defensive bias. The S&P 500 results are considerably better than the loss generated in the “normal” September.
3Q2023
Energy +11.3%
Communication services +2.8%
Financials -1.6%
Healthcare -3.1%
S&P 500 -3.7%
Consumer discretionary -5.0%
Materials -5.3%
Industrials -5.6%
IT -5.8%
Staples -6.6%
Real estate -9.7%
Utilities -10.1%
If there is to be a mutual fund selling season this year, and assuming we haven’t seen it already, it has almost no time to get started. The most convincing thing that 3Q performance says to me is that world economies aren’t showing great strength. If they were, Materials and Industrials would be outperformers. Energy, which is normally also a barometer of economic strength, is outperforming, I think, because of OPEC production cuts rather than booming end-user demand.