A year ago, I was reporting on an outstanding first half of the year. Every sector in the S&P 500 was in positive territory during the first half of 2019.

Following a first quarter this year in which every sector was down by double digits, we almost saw the mirror image of 2019 for the first half of the year. But a strong performance in Q2 this year brought some sectors back above water for the year.

The coronavirus pandemic has been responsible for this year’s extraordinary volatility. It doesn’t appear that the COVID-19 outbreak will fade away anytime soon, so we’ll likely see further volatility for at least the remainder of this year.

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The S&P 500 rose by 20% in Q2, which was its best overall quarter since 1998 and the best second quarter since its inception in 1957. Every sector that makes up the Select Sector SPDR exchange-traded funds (ETFs) that represent the S&P 500 rose in the second quarter.

Let’s dissect this quarter, sector-by-sector.

11 Sector Review

Select Sector SPDRs are targeted ETFs that divide the S&P 500 into 11 sector index funds. These sectors are Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Materials, Real Estate, Technology, and Utilities. The 11 Select Sector SPDRs represent the S&P 500 as a whole.

Following the deep sell-off in Q1, the Energy sector had the strongest performance in Q2 with a 31.9% return. But that first quarter wipe-out was too deep to overcome. The energy sector was the worst performer of the first half with a return of -34.7%. Some of the energy sector’s biggest holdings are ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), EOG Resources (NYSE: EOG), and Schlumberger (NYSE: SLB).

The Consumer Discretionary sector was the second best performer in Q2, and only one of three sectors with a positive return for the first half of the year. This sector includes industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing. It is comprised of companies such as Amazon (NSDQ: AMZN), Home Depot (NYSE: HD), and Walt Disney (NYSE: DIS).

Technology was the half’s biggest winner, just as it was a year ago. The sector was the third best performer of the quarter, but the best performer of the first half with a 14.9% return. This sector includes technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment. Components of this ETF include Apple (NSDQ: AAPL), Microsoft (NSDQ: MSFT), and Intel (NSDQ: INTC).

The Materials sector rose 25.8% in the second quarter, but that wasn’t enough to offset the deep losses of Q1. This sector was down 7.1% for the first half of the year. The sector includes companies that produce chemicals, construction materials, metals and mining, and paper and forest products. Among its largest components are DowDuPont (NYSE: DWDP) and Sherwin-Williams (NYSE: SHW).

Communication Services was the final member to outperform the S&P 500 with a return of 22.4%. The sector was one of the three with a positive first-half return. This sector includes diversified telecommunication services, wireless telecommunication services, media, entertainment, and interactive media & services. Components include Facebook (NSDQ: FB), Alphabet (NSDQ: GOOGL), and AT&T (NYSE: T).

The Industrial sector returned 16.9% for the quarter, but ended the first half down 14.6%. Component industries include aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, and machinery. Important constituents of this sector include Boeing (NYSE: BA), 3M (NYSE: MMM), and Honeywell (NYSE: HON).

Financials were down more than 30% in Q1, but nearly made up all of those losses in the second quarter. In addition to banks, this group includes financial services firms, insurance companies, and consumer finance companies. Major companies include Berkshire Hathaway (NYSE: BRK.A, BRK.B), JPMorgan (NYSE: JPM), and Citigroup (NYSE: C).

The Real Estate Index, consisting primarily of real estate management and development companies and real estate investment trusts (REITs), continues to struggle in the wake of the pandemic. The sector gained 13.2% for the quarter, but is still down 8.6% year-to-date. Simon Property (NYSE: SPG) and American Tower (NYSE: AMT) are among the largest representatives of this group.

The Health Care sector continues to struggle as well, as hospitals cancel elective surgeries to deal with the COVID-19 crisis. This sector is the second worst performer year-to-date, with a decline of 23.7%. The Health Care 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).

The Consumer Staples sector has held up well, with a modest decline in Q1 and a modest rebound in Q2. This year this sector has been the least volatile of all sectors. Making up this sector are companies 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 Procter & Gamble (NYSE: PG), Philip Morris International (NYSE: PM), and Coca-Cola (NYSE: KO).

The Utilities sector was left behind in the Q2 rally, returning a mere 2.7%. This may be attributable to investors chasing higher-flying sectors during the rebound, but it also comes on the heels of an outstanding 2019 for the Utilities sector. Companies that produce, generate, transmit or distribute electricity or natural gas predominantly make up the Utilities sector. Component companies include NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK), and Dominion (NYSE: D).

What’s Next

Few people anticipated that we would see one of the best quarters in history following the carnage in Q1. At this point, I believe the market has gotten well ahead of itself in projecting a return to normal. I believe we will see a continued drag on the economy as a result of the still spreading COVID-19 pandemic, with considerable volatility in the second half of the year.

I always advise not to try to time the market, but you should keep a list of quality companies that you would like to pick up on sale. I suspect you will get an opportunity for cheaper prices before year-end.

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