In anticipation of my next article, here's some data I gathered showing performance of various sectors during market downturns.
A survey of the S&P since 2005 found at least 9 instances where markets dropped/corrected for a short time. There was probably some more but I picked the most obvious ones as it doesn't matter if I catch 100%. I did exclude the financial crisis as I felt it was such an outlier that its not relevant to my general question of what to do if you think the markets are going to drop.
So the below table, you can see which sectors did better (green) or worse (red) than the S&P 500 over the same time points. The 3 defensives did really well, dropping only around 4-6% while the S&P dropped 10% and the cyclics like industrials dropped 11%-14%. Tech and consumer discretionary was much closer to the cyclics than I thought they would be.
(Edit: Added chart for those who prefer. I would include this chart in my articles but MktWth hates my charts for some reason and never prints them...)
Event | S&P 500 | Industrials | Materials | Cons. Disc. | Tech | HealthCare | Utilities | Cons. Stap. |
Peak Date | SPY | XLI | XLB | XLY | XLK | XLV | XLU | XLP |
Sept, 2012 | -7.8% | -6.2% | -9.3% | -5.9% | -12.5% | -2.6% | -6.8% | -4.4% |
Apr, 2012 | -9.7% | -11.4% | -11.6% | -7.3% | -10.2% | -5.7% | +1.7% | -3.1% |
July, 2011 | -18.8% | -25.8% | -29.6% | -18.7% | -13.3% | -14.5% | -3.2% | -8.2% |
Apr, 2010 | -15.8% | -18.6% | -20.2% | -19.2% | -15.6% | -9.6% | -7.7% | -9.0% |
Jan, 2010 | -8.0% | -8.5% | -12.7% | -5.9% | -9.0% | -7.0% | -8.6% | -3.6% |
July, 2007 | -8.9% | -8.2% | -13.5% | -11.6% | -7.4% | -6.5% | -5.3% | -4.1% |
May, 2006 | -7.5% | -9.4% | -15.5% | -6.7% | -9.4% | -1.6% | +0.8% | -2.5% |
Sept, 2005 | -5.8% | -2.8% | -6.3% | -8.1% | -5.3% | -5.4% | -8.7% | -3.2% |
Mar, 2005 | -7.3% | -8.0% | -12.0% | -9.4% | -8.5% | -1.7% | -2.2% | -5.0% |
Average | -10.0% | -11.0% | -14.5% | -10.3% | -10.2% | -6.1% | -4.4% | -4.8% |
Median | -8.0% | -8.5% | -12.7% | -8.1% | -9.4% | -5.7% | -5.3% | -4.1% |
Now at the end of the day, they all still dropped so you didn't make any money there but you know, if you guessed wrong and the market kept going up like its been lately? Well at least you would've made good money off of it! Sitting in cash or shorting the market instead will be extra painful if the market continues pushing up. So its a tradeoff there.
The one concern I have is whether those sectors have already been "pumped up" so to speak because people are anticipating a drop. It certainly feels like they're somewhat overvalued already...
The table below is how the deltas vs the S&P for each sectors.
S&P 500 | Industrials | Materials | Cons. Disc. | Tech | Health | Utilities | Cons. Staples | |
Event | SPY | XLI | XLB | XLY | XLK | XLV | XLU | XLP |
Sept, 2012 | 1.64% | -1.47% | 1.91% | -4.70% | 5.24% | 1.08% | 3.39% | |
Apr, 2012 | -1.73% | -1.94% | 2.34% | -0.55% | 3.99% | 11.42% | 6.54% | |
July, 2011 | -7.06% | -10.84% | 0.09% | 5.52% | 4.26% | 15.63% | 10.56% | |
Apr, 2010 | -2.84% | -4.44% | -3.44% | 0.15% | 6.14% | 8.11% | 6.77% | |
Jan, 2010 | -0.50% | -4.70% | 2.08% | -1.01% | 0.94% | -0.60% | 4.33% | |
July, 2007 | -1.82% | -7.94% | 0.82% | -1.89% | 5.97% | 8.30% | 5.06% | |
May, 2006 | 0.66% | -4.62% | -2.73% | 1.50% | 2.45% | 3.60% | 4.77% | |
Sept, 2005 | -0.71% | -4.69% | -2.10% | -1.16% | 5.60% | 5.15% | 2.33% | |
Mar, 2005 | 2.91% | -0.57% | -2.35% | 0.43% | 0.39% | -2.98% | 2.59% | |
Avg | -1.05% | -4.58% | -0.38% | -0.19% | 3.89% | 5.52% | 5.15% | |
Median | -0.71% | -4.62% | 0.09% | -0.55% | 4.26% | 5.15% | 4.77% |
Will add more charts and tables later...hey I gotta get additional page visits somehow right?
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