There are many questions on the investment horizon, but it’s clear that 2006 has been a good year for U.S. stocks. Through yesterday’s close, the S&P 500 has risen by 10.3%. By historical standards, that’s pretty good. In fact, over the long haul, the stock market has delivered roughly an annualized 10%. It’s anyone’s guess if that will hold true in the years ahead, but it’s a safe bet that investors would be more than happy if it did.
We can’t tell you what’s coming, but we’re crystal clear on what’s already rolled by. Perhaps there’s even a kernel of insight about the future based on studying the past. In any case, we took a closer look at the sector drivers behind this year’s ascent in the S&P and compared that with last year’s tally. Among the immediate conclusions: What a difference a year makes.
This year, through October 30, the leading sector is telecom services, charging ahead by 27.2%, as our table below reveals. That’s an impressive recovery from 2005, when telecom was dead last in the year-to-date tally in 2005 through October 31, courtesy of a 10% stumble.
Some things haven’t changed though, at least not much. Energy was red hot in 2005 through the end of October, climbing by nearly 27%. The bull market in energy stocks has cooled considerably, but not completely and so the sector’s still up by 14.2% this year through last night’s close.
In third place so far this year is consumer discretionary. As with telecom, consumer discretionary stocks have bounced back in 2006 from an ugly stretch last year as of this point.
Meanwhile, even the S&P 500’s tech sector is showing life again. Although it’s still in last place in 2006 through yesterday, as it was at this time last year, the difference is that dead last doesn’t mean red ink this time.
That brings us to our next point: picking sectors in 2006 has been about as tough as shooting fish in the proverbial barrel. In other words, all of the S&P 500 sectors are up so far this year. In fact, seven of the ten sectors have scored gains above and beyond the market overall, as measured by the S&P 500.
Return and value aren’t necessarily synonymous, of course. In fact, when we profile the S&P 500 sectors by price-earnings ratio, the view changes more than a little. Seven of the ten sectors carry estimated p/e ratios above the benchmark. And when it comes to telecom stocks, the last in performance shall be the first in p/e, as our table below shows.
Curiously, energy has the lowest p/e of sector neighbors. In fact, energy’s p/e of 10 is well below the market’s 15.89, and a world below tech’s 23. We know what Mr. Market thinks of the future when it comes to sectors. Care to join the bandwagon?