The winners of 2023 are the losers of last year

When it comes to market sectors, last year’s losers are this year’s winners.

Top performers in the S&P 500 are technology (XLK), communication services (XLC) and consumer discretionary (XLY), up about 32%, 32% and 22%, respectively, so far this year . It should be noted that these three sectors were the worst performers in 2022 as the Federal Reserve raised interest rates and investors worried about a looming recession.

Investors who stuck with last year’s laggards saw their luck turn in 2023.

Even the much-beaten ETF Homebuilders (XHB) is up 24% year-to-date. The exchange-traded fund that includes names like Lennar (LEN) and Toll Brothers (TOL) is down nearly 29% in 2022 amid rising mortgage rates.

In contrast, energy stocks, the superstars of 2022, have lost their luster this year. Energy Select (XLE), is down more than 6% since the start of the year. Keep in mind that the sector gained 64% in 2022.

“Energy is negatively correlated with technology, as investors tend to use energy stocks as a source of funds to invest in technology,” Jay Hatfield, CEO of Infrastructure Capital Management, told Yahoo Finance.

This trend has also deepened due to oil demand concerns given China’s weaker than expected recovery once the Covid lockdowns are lifted.

Much of the tech-fueled rally this year comes amid expectations of a Fed rate pause by mid-year, low unemployment and a frenzy around generative artificial intelligence.

The March banking crisis caused a sharp sell-off in financials and other cyclicals as investors turned to technology stocks.

“Large-cap tech stocks were seen as a safe haven during the banking crisis, as most tech stocks have low debt or even net cash positions. Then the AI ​​boom started with the exit from Chat GPT, fueling a new rotation into tech stocks,” Hatfield said.

The trend accelerated as chipmaker Nvidia (NVDA) released a better-than-expected quarter and hit forecast. The stock, which was down 48% last year, is up 162% since the start of 2023.

Overall, the tech-heavy Nasdaq is up about 25% year-to-date, while the S&P 500 has gained 11%. Still, strategists point to the lack of magnitude of the 2023 rally as a warning signal.

“We may be on the cusp of a new bull market here, but I think this bull market definitely deserves an asterisk until we see broader participation. And right now, we don’t see it. just not,” Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors, told Yahoo Finance Live recently.

Investors hoarding money from AI trading have fueled the concentration of market gains among a handful of companies.

Bank of America strategist Michael Hartnett calls these outperformers the “Magnificent Seven” – Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA ), and Nvidia (NVDA).

The “Magnificent Seven” account for 83% of the $4 trillion growth in the Nasdaq 100 stock market value in 2023. Apple and Microsoft have each gained more value than all of the bottom 93 stocks, Yahoo Finance’s Jared Blikre recently noted.

Nvidia shares, which were down 48% last year, have risen 162% since the start of 2023. REUTERS / Dado Ruvic / Illustration

Nvidia shares, which were down 48% last year, have risen 162% since the start of 2023. REUTERS / Dado Ruvic / Illustration

“When you rely on just a few stocks to drive performance, that historically hasn’t ended well,” Jim Tierney, AB chief investment officer at Concentrated US Growth, told Yahoo Finance Live.

“The market has to widen, or at some point those 8 or 10 stocks just lose – out of gas.”

Ines is a senior economics reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

Click here for the latest stock market news and in-depth analysis, including events moving stocks

Read the latest financial and business news from Yahoo Finance

Leave a Comment