2024 saw quite a divergence in returns between the leading sectors of the equity markets as compared to those that lagged. As is illustrated by the chart below, Communication Services (XLY), led by the two largest components, Meta (META) and Alphabet (GOOGL) was the strongest performer. Following closely was a resurgent Financial Services Sector (XLF) as longer-term interest rates rose, and the yield curve normalized. Of the eleven sectors that comprise the S&P 500, the third and final sector that outperformed was Consumer Discretionary (XLC), among which, its largest component, Amazon (AMZN), representing 21.15% of the index, saw its shares rise nearly fifty percent.
What struck us regarding last year was the severity of the underperformance of eight of the eleven sector and specifically, the bottom three, Materials (XLB), Energy (XLE) and Real Estate (XLRE), two of which rose less than three percent as the worst actually fell.
In our opinion, the Materials sector was pressured by worries over the strength of the global economy, specifically China, which, historically comprises a substantial percentage of worldwide demand. That along with increasing domestic supply is most likely what also held back the energy sector. Finally, we believe that the long-lasting impact on demand for commercial real estate stemming from the COVID pandemic as well as stubborn inflation pushed down the real estate market.
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Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
