Line chart comparing performance of
growth, cyclical, and defensive equities and the S&P 500 Index.
Y-axis: Index value (indexed at 100 on 1/1/2020); X-axis: 1/20 – 9/21.
Indexed at 100 in October 2020, the sectors quickly differentiated themselves. By year-end 2020, the cyclicals sector led with a value near 122, followed by the S&P 500 (just over 115) and the growth sector (near 114). Defensives trailed the group at about 107.
The four groups maintained that relative positioning throughout this time period, with cyclicals leading, followed by growth and the S&P 500 Index closely correlated, and defensives trailing.
By the end of February 2021, cyclicals had further enhanced their position, rising to over 132, while the S&P 500 Index was over 117 and the growth sectors were over 115. Defensives were near 102.
By mid-year 2021 cyclicals continued to lead (near 153), followed by the S&P 500 Index (near 133) and growth sectors (about 130). Defensives continued to trail near 114.
As of the end of September 2021, cyclicals stood at 151, representing a more than 51% increase versus the indexed value for this time period. The S&P 500 Index stood at just over 133 (a more than 33% increase), and growth sectors were at more than 131 (a more than 31% increase). Defensives continued to trail at near 115, representing a just over 15% increase.
Sources: © 2021 – Morningstar Direct, All Rights Reserved1 and Wells Fargo Investment Institute. Daily data from October 28, 2020 to September 30, 2021. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. An index is unmanaged and not available for direct investment. The cyclical index is the average growth across the sector indices for each period of the S&P 500 financials, energy, industrials, real estate, and materials sectors. The defensive index is the average growth across the sector indices for each period of the S&P 500 health care, utilities, and consumer staples sectors. The growth index is the average growth across the sector indices for each period of the S&P 500 communication services, consumer discretionary, and information technology. Past performance is no guarantee of future results. Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities. See “Index Definitions and Asset Class Risk Disclosures” link above for equity sector risks.
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- Based on our outlook for a strengthening economic recovery, we favor cyclical sectors such as Financials and Industrials. We believe the cyclical rally is sustainable through the end of 2021.