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A Mixed Bag Thumbnail

A Mixed Bag

Investing Insights

Pockets of coronavirus cases had markets questioning themselves this week. Stocks took a tumble from their prior optimism as the country realized reopening may not be as safe as previously thought, sparking increased fears of potential new lockdowns. Check out How the Virus Won, a fascinating interactive map from the NYT, which visualizes the spread of the coronavirus using travel patterns, hidden infections and genetic data.

Within markets, it remains a mixed bag. New orders for commercial aircraft and parts were down 122% in May relative to a year earlier, reflecting ongoing cancellations of Boeing jets. Automobile sales are also down an estimated 28.7% from June 2019. Utilities and real estate sectors have dropped nearly 10% from highs as work from home has become the new norm, causing lower demand for office space and less utility usage.

On the flip side, the consumer discretionary and energy sectors are both on pace for their best quarterly performance since 1989. Energy surprisingly bounced back after a rough start to the year, and Amazon’s 40% jump this quarter has helped buoy the consumer discretionary sector.

While some of these trends may seem obvious in hindsight, we must remember that trying to outguess markets can be hazardous to our wealth. Returns are random, and impossible to predict with any consistency. The below chart shows just that; the annual returns of US market sectors, ranked from best to worst performing each year since 2009. The results, while colorful, show the lack of predictability in performance from one year to the next. There is no obvious pattern that can be exploited for excess profits, reinforcing the case for broad diversification across all sectors in the market.
 

Chart: In US dollars. Russell Global Classification Scheme (“RGS”) is a proprietary system for classifying companies into 9 sectors, 33 sub-sectors and 157 industries. The annual returns displayed are a breakdown of the sector returns from the Russell 1000 Index. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Index performance does not reflect the expenses associated with the management of an actual portfolio.

Past performance is not a guarantee of future results.