On Friday afternoon, we took a look at the stock market's reaction to the fourth quarter earnings season in the United States, and found that in contrast to the previous three earnings seasons, this one was a bust. Even though earnings were strong, with 68 per cent of companies beating the expectations from analysts, the S&P 500 fell 3.5 per cent from the start of the season to the end.
This time, we'll take a look at what sectors did what. Materials were the worst hit, falling 7.7 per cent between Jan. 11 (when Alcoa Inc. began the reporting season) to Feb. 18 (when Wal-Mart Stores Inc. closed it). Telecom services fell 6.8 per cent, utilities fell 5.9 per cent and financials fell 5.7 per cent.
Consumer staples performed the best - in fact, this was the only subindex that showed a gain - with these mostly defensive stocks rising 1.4 per cent over the period. Consumer discretionary stocks fell, but by just 0.8 per cent. Health care stocks also fared better than the broader market, falling 1.4 per cent.
This contrasts with the second quarter earnings season, when a series of mostly upbeat earnings reports sent investors scrambling back into the stock market in anticipation of an economic turnaround. The S&P 500 surged 15.1 per cent in July and August.
Financials felt the biggest pop, rising 29 per cent. Materials, which are also closely connected to an economic recovery, were close behind, rising 26.7 per cent.
By comparison, the more defensive areas of the market lagged severely. Consumer staples rose just 4.6 per cent and health care stocks rose 6.9 per cent.
No wonder some observers are now talking about a sector rotation, in which new sectors are about to take leadership of the market.