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Market summary for February and sector analysis

Market Summary

The recent market correction impacted 2 sectors mainly. Investors focused on particular stocks that the market deemed overvalued (Tesla and Apple):

  • Consumer discretionary: Tesla Inc shares were the main reason why the sector underperformed. The company’s share value lost 17% in the past month only. The hype surrounding Tesla and the popularity of its CEO Elon Musk have pushed Tesla Inc shares to unrealistic valuation. Just recently, Michael Burry, the ‘Big Short’ investor stated that Tesla’s decision to bet on Bitcoin by purchasing $1.5B was a distraction. Musk’s motive was probably to eclipse bad news for the car maker coming from China. In addition to Tesla Inc, Amazon shares slipped 3% this past month which also led to this sector being in the red.
  • Information technology: Apple Shares lost 9.50% of their value dragging down this sector. From the big 5 businesses that make up the Information Technology sector, Apple Inc was the only one to lose ground. The stock may have been unfairly punished due to a global semiconductor shortage that could squeeze margins. However, the company is well positioned to turn things around and be less impacted than its competitors.

Table 1: Performance by industry (S&P 500)

S&P by sector5 days3 Month1 Year
S&P 500 Energy5.95%26.83%-10.58%
S&P 500 Financials2.51%18.79%7.03%
S&P 500 Real Estate1.16%4.97%-7.95%
S&P 500 Materials1.79%7.45%25.23%
S&P 500 Industrials1.38%4.03%9.77%
S&P 500 Consumer Staples-0.92%-2.24%0.50%
S&P 500 Communication Services-0.62%12.18%25.35%
S&P 500 Health Care-1.89%5.07%10.23%
S&P 500 Utilities-2.01%-4.41%-13.56%
S&P 500 Consumer Discretionary-2.72%5.75%28.55%
S&P 500 Information Technology-4.09%10.39%33.55%
S&P 500 Index-1.30%8.49%16.29%

Table 2: Largest businesses part of the S&P500 Information Technology

Name1M %Chg3M %Chg52W %Chg
Apple Inc-9.50%10.55%60.82%
Microsoft Corp3.24%11.02%30.62%
Nvidia Corp3.13%7.63%92.36%
Visa Inc4.99%1.90%1.58%
Mastercard Inc6.51%5.54%3.16%

Table 3: Largest businesses part of the S&P500 Consumer Discretionary

Name1M %Chg3M %Chg52W %Chg
Tesla Inc-17.46%33.92%287.81% Inc-2.97%3.10%52.41%
Home Depot-5.90%-1.53%8.93%
Nike Inc-2.31%1.49%35.79%
McDonald’s Corp-0.97%-2.62%-2.11%

Note: Opinions expressed in cannot be construed as a financial advice.

Sector analysis for 2021

U.S. stocks recovered from the selloff in February and March (when the first shutdown was announced), finishing 2020 with a 16% return, as measured by the S&P 500.

Performance of the S&P by sector in the past years!

SectorPerformance 2020
Information technology 43.9%
Consumer discretionay index33.3%
Communication services index23.6%
Materials index20.7%
S&P 500 Index18.4%
Health Care 13.5%
Industrials index11.1%
Consumer Staples10.8%
Real estate-2.2%
Energy index-33.7%

In aggregate, energy and real estate stocks look undervalued, while the technology sector is the most overvalued. Both Energy and Real-estate were hit hard by the effect of the pandemic. Work from home restrictions and lock down have directly impacted their revenues making these cyclical sectors lose ground in the stock market.

Many analysts attribute the performance of the S&P500 to the rush to acquire shares in Technology driven giants such as Facebook, Google, Tesla or Amazon. They believe these stocks have become overvalued at the expense of other sectors that retain little or no attention from investors. See table below for undervalued sectors:

SectorUndervalued segments within SectorStocks examples (as per Morning star analysis)
Basic materialsUndervalued segments within Sector: Agriculture and Chemicals industriesCompass Minerals CMP, Dupont DD, Nutrien NTR
Communication servicesTraditional media and telecomFox (FOAXA), Lumen Technologies (LUMN), Omnicom Group (OMC)
Consumer Defensive Consumer packaged goods salesCoca-Cola Femsa (KOF), Kellogg (K), Pilgrims Pride (PPC)
EnergyWhole sector is undervalued. Focus on companies not invested in Shale Gas.Entreprise Products Partners (EPD), Pioneer Natural Resources (PXD), Schlumberger (SLB)