Q3 Report Card: All Sectors Make the Grade

The third quarter of the year is in the books. The S&P 500 returned 7.7% for the quarter, its best quarterly performance in nearly five years. 

The rally was broad-based. Not one S&P 500 sector recorded a loss for the quarter, while two sectors recorded a double-digit gain.

Let’s dissect the third quarter of 2018, sector-by-sector.

10 Sector Review

Select Sector SPDRs are targeted exchange-traded funds (ETFs) that divide the S&P 500 into 10 sector index funds. These sectors are Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Utilities, and Real Estate. The 10 Select Sector SPDRs represent the S&P 500 as a whole.

Health Care has been up and down this year, but it broke out in Q3 for a 15.0% gain. This represented the top sector performance for Q3. This sector includes health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries. Bellwethers in the health care sector include Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE).

In second place was the Industrials, which had been the second biggest losers in the first half of the year due to General Electric’s (NYSE: GE) first-half decline. This sector’s strong Q3 gain of 10.9% now puts this sector in positive territory for the year. Component industries include aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, and machinery. In addition to GE, important constituents include Boeing (NYSE: BA), 3M (NYSE: MMM), and Honeywell (NYSE: HON).

In third place with a total return of 9.3% was Technology, which nearly matched its first half 2018 performance of 9.4%. This sector includes Internet software and service companies, semiconductor equipment and products, computers and peripherals, diversified telecommunication services and wireless telecommunication services. Components include Apple (NSDQ: AAPL), Microsoft (NSDQ: MSFT), and Facebook (NSDQ: FB).

The top-performing sector in the first half of 2018 was Consumer Discretionary, and it still had a strong Q3 performance of 7.2%. This sector includes industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing. It is comprised of companies like (NSDQ: AMZN), Home Depot (NYSE: HD), and Walt Disney (NYSE: DIS).

The Consumer Staples sector had been the worst-performing sector in the first half of the year, but it bounced back in Q3 with a 5.4% return. Companies in this sector are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. Component stocks include Proctor & Gamble (NYSE: PG), Philip Morris International (NYSE: PM), and Coca-Cola (NYSE: KO).

Financials took sixth place for the quarter with a return of 4.2%. In addition to banks, this group includes financial services firms, insurance companies, and consumer finance companies. Major companies include Berkshire Hathaway (NYSE: BRK.B), JPMorgan (NYSE: JPM), and Citigroup (NYSE: C).

The Utilities sector continues to plod along, with a 2.2% return following a strong showing in August. This sector is predominantly represented by companies that produce, generate, transmit or distribute electricity or natural gas. Component companies include NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK), and Dominion (NYSE: D).

The Real Estate Index, consisting primarily of real estate management and development companies and real estate investment trusts (REITs), was the third worst quarterly performer with a return of 0.7%. Simon Property (NYSE: SPG) and American Tower (NYSE: AMT) are among the largest representatives of this group, which returned 0.75% for the first half.

The Energy sector only eked out a return of 0.4% for the quarter, but these numbers for individual companies varied greatly within the sector. Many oil producers, like bellwether ConocoPhillips (NYSE: COP), saw double-digit returns for the quarter. Some natural gas producers, on the other hand, saw double-digit losses for the quarter as supply continues to outpace logistics in the Marcellus and Utica shales.

Finally, the Materials sector, which was a first-half loser with a return of -3.17%, rose 0.2% in Q3. This Index is primarily composed of companies involved in industries like chemicals, construction materials, metals and mining, and paper and forest products. Among its largest components are DowDuPont (NYSE: DWDP) and Sherwin-Williams (NYSE: SHW).

As I’ve just explained, the third quarter was exemplary. But if you don’t want to worry about the gyrations of the market from one quarter to another, turn to be my colleague Linda McDonough, chief investment strategist of Profit Catalyst Alert.

Linda has developed an investment method that scores big gains regardless of the fickleness of markets.

In fact, she’s delivered gains of 66%… 70%… 94%… 100%… 110%… and even 250% so many times…

And in such short order…

One Profit Catalyst Alert user has taken to calling Linda the “boss lady.”

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