SKYW - Top Stocks By Sector (SA Quant)

2024-05-16 07:00:00 ET

Summary

• Diversifying portfolios across sectors can help mitigate industry risk.
• Sector performance varies across different phases of the business cycle, with tech and financial stocks outperforming in expansion phases and staples and utilities in recessions.
• In the past year, the Communication and Technology sectors have soundly outperformed the S&P 500, and Real Estate and Consumer Staples have been the biggest underperformers.
• So far in 2024, Utilities, Communication, and Energy lead the way, and Consumer Discretionary and Real Estate are at the bottom of the pack.
• SA’s Quant Team has identified a top stock in each of the eleven market sectors. The stocks on the list are up by ~175% on average in the past year with strong earnings growth potential.

Diversifying portfolios across sectors can be a useful approach to avoid putting “too many eggs in one basket” and hedging against industry risk. According to an SPDR Americas Research study based on 60 years’ worth of data, sector performance has varied across four phases of a business cycle: expansion, slowdown, recession, and recovery. Technology and financials have been the highest-performing sectors during economic expansion phases; staples and health care during slowdowns; staples and utilities during recessions; and consumer discretionary and real estate during recovery periods.

4 Business Cycle Phases

However, there are major risks in trying to time sector allocation because the business cycle is not always a straight progression; phases are sometimes skipped or retraced....

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