It's been easier to make money on stocks this year than it might appear. There's been a gusher of gains for investors in some unexpected places.
Energy stocks, including natural gas processor Oneok (OKE), gas and oil producer Southwestern Energy (SWN) and energy explorer Range Resources (RRC), have been a driving force to push markets higher this year and in the just-completed second quarter, according to a USA TODAY analysis of data from S&P Global Market Intelligence. These energy stocks not only are among the best in the Standard & Poor's 500 for the year, gaining 92.4%, 76.9% and 75.3% respectively, but also in the quarter.
Seeing such a strong bounceback in energy stocks is just one of the indications the stock market isn't as lame as many investors might think. The S&P 500 didn't do much, rising just 2.7% this year so far and 1.9% during the quarter. But this "steady-as-she-goes stock market" reflects a similarly slow-growth economy where there is still opportunity, says Bryan Sadoff, investment advisor at Sadoff Investment Management.
The themes driving the market so far this year, which only intensified during the quarter, include:
• Energy has been the story of the stock market. The Energy Select Sector SPDR exchange-traded fund, which tracks energy stocks in the S&P, is up 13.1% this year, second only to utilities, which rose 21.2%. During the quarter, energy stocks pulled ahead by 10.3%, topping all 10 of the S&P 500 sectors. Six of the 10 best-performing stocks this year are energy stocks, and seven of the top stocks for second quarter were, too. A 31% rise in the price of WTI crude to about $50 a barrel has been a boon for brave investors. Energy stocks got a lift, too, from investors betting moves by central banks would stoke inflation, says Chris Zaccarelli, chief investment officer at Cornerstone Financial.
• Playing it safe has been the way to make money. Nervous investors decided slow-and-steady stocks were the places to be. Following energy, the best sectors in the quarter were health care, utilities and consumer staples companies that make necessities, rising 5.8%, 5.7% and 3.9% respectively. Investors betting the economy is about to slow boosted these stocks, Zaccarelli says.
• Technology is out. If energy stocks were in, tech stocks were out. Investors weren't in the mood for chasing shares of volatile stocks during the period. The Technology Select Sector SPDR fund was down 2.2% during the quarter as consumers see slowing growth in both personal computers and smartphones as an issue. Seagate Technology (STX), a maker of computer storage, fell 29% during the quarter. Don't just blame the PC, though. Skyworks Solutions (SWKS), which makes chips that go into mobile devices, fell 19% during the quarter.
• Hopes aren't high for consumer spending. Companies that make items that consumers could put off buying were certainly out of favor. These so-called consumer discretionary stocks fell 1.3% in the quarter and down 0.1% for the year. Some of the hardest-hit stocks in the quarter are companies that sell luxury items, such as Signet Jewelers (SIG) and high-end department store Nordstrom (JWN), falling by a third in the quarter. Airlines were weak, too, dropping by a quarter during the quarter.
Expect the tug of war between inflation-fearing energy investors and recession-dreading utilities buyers to continue, says Zaccarelli, who thinks the market can ease higher. But the risks are rising, too, as investors follow the same playbook. The three best stocks of the year — Newmont Mining, Oneok and Southwestern — are already trading above what the average analysts think they should be worth in 18 months. And utilities are so popular their trailing price relative to profit is now roughly 50% more expensive than the market.
Even so, "we're cautiously optimistic," Zaccarlli says.
BEST-PERFORMING S&P 500 STOCKS THIS YEAR
Company, symbol, YTD % ch.
Newmont Mining, NEM, 117.5%
Oneok, OKE, 92.4%
Southwestern Energy, SWN, 76.9%
Range Resources, RRC, 75.3%
Freeport-McMoRan, FCX, 64.5%
Spectra Energy, SE, 53%
EQT, EQT, 48.5%
Iron Mountain, IRM, 47.5%
Cabot Oil, COG, 45.5%
Digital Realty Trust, DLR, 44.1%
WORST PERFORMING S&P 500 STOCKS THIS YEAR
Company, symbol, % Ch. YTD
Endo, ENDP, -74.6%
CF Industries, CF, -40.9%
Alexion Pharmaceuticals, ALXN, -38.8%
Perrigo, PRGO, -37.3%
Regeneron Pharmaceuticals, REGN, -35.7%
Royal Caribbean Cruises, RCL, -33.7%
Seagate Technology, STX, -33.6%
Signet Jewelers, SIG, -33.4%
American Airlines, AAL, -33.2%
BorgWarner, BWA, -31.7%
Source: S&P Global Market Intelligence, USA TODAY
