The sector factor

  • Consumer discretionary was strongest S&P sector of past decade
  • Energy stocks underperformed the most
  • Data shows strong sectors in one year more likely to slip the next

We’re not just on the cusp of a new year, we’re about to kick off a new decade. And taking a look at how sector rotation played out in the S&P 500 over the past decade may offer some food for thought about where momentum could be headed in the New Year.

The following table shows the rankings of the 11 S&P sectors for each year from 2010-2019. The bottom row shows each sector’s median rank for the entire decade:

Chart 1: S&P 500 sector rankings by year, 2010-2019

Data source: Standard & Poor’s. *2019 data reflects performance through 12/20/19

A few interesting observations:

1. No sector ever claimed the top spot two years in a row. On average, the top sector  dropped six spots in the rankings the next year.

2. Overall, consumer discretionary—not tech—had the highest median rank (3) for the decade. It grabbed the No. 1 spot two times, and was never one of three-weakest sectors.

3. Energy was the clear laggard, showing up as the weakest (or second-weakest) sector six times in the past 10 years.

4. From year to year, it was more common for sectors to move from strength to weakness than vice versa. For example, there were only four years when one or more of the three-weakest sectors flipped to become one of three-strongest sectors the next year. But in every year but one (2014), at least one of the three-strongest sectors became one of the next year’s three-weakest.

So, regarding that last point, if the pattern holds it would suggest that at least one of this year’s top-three (tech, communication services, and financials, as of December 20)—could be one of 2020’s bottom three.

Finally, here’s an ultra-contrarian alert: While it would be foolhardy to put too much faith in a single data point, some traders may take note that the last time the energy sector was the S&P’s worst performer in back-to-back years (2014-2015), it jumped to front of the line the next year.


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