The stock market’s been a yawn this year, but the sport of water treading that dominates the broad indices masks the price volatility that lurks below.
The S&P 500 has climbed 1.4% through July 7, but this drowsy performance profile is hardly common within the ten sectors that comprise the broad market. As the chart below shows, the range of returns within the market index has been wide this year. At the head of the horse race is energy–still. Rising by more than 13% year-to-date, the ongoing bull market in all things energy related stands in stark contrast to equities generally. Ditto for the bottom-performing sector in 2006, albeit in reverse. The tech slice of the S&P 500 has been no wallflower when it comes to dispensing red ink: the tech stocks have shed nearly 8% this year.

Between those two extremes lie the various shades of gray that add up to a mixed market and building blocks that, in theory, can lead to besting beta with superior equity selection skills. Success in stock picking requires choosing the right sectors more so than usual this year–advice that’s born out in the outlook for sector earnings. As Zacks reported last week, the median firm in the S&P 500 is expected to report earnings growth of 8.1% for the second quarter. But far-greater drama resides in the sector-specific tally, as the table below reveals (courtesy of Zacks.com). Energy is on top with anticipated earning growth of 40% for the second quarter; on the opposite extreme is consumer staples, with is projected to post a mere 4.0% rise in earnings.

Such variation in price returns and earnings expectations should give traders just what they need to prove their worth in doing something other than holding the index. But as veteran investors know, opportunity doesn’t easily translate into results. Bashing beta is a perennial habit, but leaving it in the dust is still the bane of most active managers.