Market rout reopens big gaps between winners and losers

Line chart of dispersion of returns by industry for companies in the S&P 500 index (%) showing returns fracture across industries

The difference in stock-price returns across US industries grew to the widest levels in at least 15 years in March, providing traders with new opportunities in the grimmest month for the market since the financial crisis.

The gap between returns across 20 industry groupings in the S&P 500 index of US blue-chips reached 42 percentage points in March, the highest level in records dating back to 2005, according to S&P Dow Jones Indices data.

“Dispersion among industry returns skyrocketed in March, reaching an unprecedented level,” S&P said.

The measure tracks the difference in returns across the group of industries within the S&P 500, weighted by the size of the underlying companies and sectors.

The worst-performing industry in March was energy equipment, which lost 57 per cent, as the oil price fell and economic activity slowed to counter the spread of coronavirus. Banks, which make up a large portion of the US stock market, fell 30 per cent, according to S&P data. Bank stocks typically struggle when interest rates fall — as they did when the US Federal Reserve made emergency cuts to its policy rate.

Telecommunications and healthcare equipment companies shed 10 per cent, making them the two best-performing groupings. Software and services companies lost 17 per cent and technology hardware dropped 16 per cent for the month.

Column chart of monthly returns for the S&P 500 (%) showing US stocks suffer worst monthly run in March since the financial crisis

As a whole, the S&P 500 fell 12.5 per cent in March. That marks the index’s worst month since October 2008, but it is still flattered by the performance of technology stocks, which make up a large chunk of the benchmark. Apple, the biggest company in the S&P 500, lost a relatively modest 7 per cent for the month, while Microsoft, the second-largest, lost 3 per cent.

“Whenever you have dispersion by any measure it means you have more opportunity,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors in Newport Beach, California. “But it’s a double-edged sword — there is more opportunity but opportunity doesn’t equal alpha,” he said, using a term that describes returns above a benchmark.

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