I am firmly on the record saying that this is a year for stockpickers. So far, they are winning. While the overall averages may be down, depending upon how one looks at it, most stocks are up. While the S&P 500 is down still slightly, the Russell 2000 is up on the year to date, reflecting the strength among smaller names. Interestingly, even in the S&P 500, where the losers edge the winners by just 6 and the price return is -0.95%, the equal-weighted index is up 0.72% YTD. I think we can chalk up the discrepancy to these 5 stocks that are all in excess of $50 billion market cap and total 5% of the S&P 500 and are down more than 10% YTD:
- AT&T (T): - 11.5%
- Amazon.com (AMZN): -12%
- Verizon (VZ): -12.7%
- Google (GOOG): -15%
- Qualcomm (QCOM): -20.7%
By my calculations, that's about a 65bps hair-cut to the market just there!
As you can see in the table below, certain trends in the sectors are emerging across market caps:
Looking at the S&P 500, the main culprit is actually Technology, as it represents about 19% of the index. Materials, Telecom Services and Utilities add up to about 10%. Industrials jumped out early in the year as I had highlighted. While GE certainly accounts for a big chunk of it, it's not the sole driver. Here are 5 Industrials >$25 billion up more than 5% YTD:
- Boeing (BA): 16.7%
- Emerson (EMR): 11.1%
- General Dynamics (GD): 6.4%
- General Electric (GE): 6.2%
- Union Pacific (UNP): 5.4%
I find it interesting that the strength in the larger-cap names isn't translating into interest yet for smaller companies, and I expect that this is most likely an opportunity. I am finding lots of smaller industrials that look attractive. Consumer Discretionary, on the other hand, is strong across market caps,similar to the way it started 2009 even in the downturn. In the S&P 500, which is being hurt by AMZN, there are 5 names in excess of $25 billion market cap up more than 5%:
- Ford (F): 17.4%
- Carnival (CCL): 13.5%
- Home Depot (HD): 7.9%
- Target (TGT): 6.5%
Wrapping up the sectors, Utilities are an area that I find quite interesting now. There have been some negative regulatory events, but I think that the sustainable dividend yield pushing 5% will prove increasingly tempting as the year progresses. One underappreciated longer-term driver is that the return of industrial demand (notice those industrial stocks???) will help many of these Utilities. If you are interested in some of my thoughts on the sector, I have shared them on my new blog.
The last area I want to cover is the Mid-Caps: Why are they doing so well? My hunch is that the improved environment for M&A really benefits this part of the market, as these companies can do accretive strategic acquisitions of private and smaller public companies and can also be acquired by larger ones. While it looks like Consumer Staples is driving returns, it's just 4% of the index. How odd that Energy and Materials are up in contrast to how they are both down in larger and smaller parts of the market. Terra (TRA) is one of the Materials stocks, supporting the M&A angle. Except for Industrials, as I mentioned above, every single sector is doing better for Mid-Caps than Large-Caps.
A final note is that "Value" is beating "Growth" across all market caps, but especially in smaller names. Yet another sign that this is a stockpicker's market. When I look at my model portfolios and the portfolio I manage, I am definitely tilting them towards "small" and "value".
Disclosure: No position in any names mentioned