Given the topsy-turvy nature of the market thus far in 2023, it remains crucial for investors to know what they are buying—especially as it relates to growth, value, and quality.
At the macro level, summing up year-to-date market leadership is nearly as simple as saying it has been one big mean reversion trade. In other words, stocks that fell the most in 2022 have been outperforming over the past couple months. As you can see in the chart below, the contrast is stark. Grouping the Russell 3000 (the best way to capture the "whole" market) into deciles based on 2022 performance, you can see (via the left-most column) that the best performers in 2022 have relatively muted gains this year. Conversely, it's clear (via the right-most column) that the worst-performing stocks in 2022 have surged thus far in 2023.
From worst to best, in two months
Source: Charles Schwab, Bloomberg, as of 3/3/2023.
Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results.
Reversals have been just as strong at the sector level. Shrinking the scope of stocks to just the large-cap space, let's take a deeper look at leadership switches among the S&P 500®'s sectors. Inspired by the flip of the calendar (or something else), investors embraced a huge swing in leadership at the start of 2023. As shown in the sector quilt below, Consumer Discretionary surged in January (outpacing all sectors) while Utilities fell the most. That was the complete opposite of the leader/laggard profile in December.
Through February, the resurgence in the large-cap "growth" trade (more on why we put that in quotes later in this report) continued to hold up relatively well, albeit with more muted gains. Not only that, but the "growth trio" of Information Technology (Tech), Consumer Discretionary, and Communication Services continued to lose its monolithic status. One of the themes within "growth" stocks over the past year has been a notable performance discrepancy between some of the largest names in that cohort. One way to see that split is in the far-right column, in which you can see a large divergence between Tech and Communication Services.
Sector shifts large and swift
Source: Charles Schwab, Bloomberg, as of 2/28/2023.
Sector performance is represented by price returns of the following 11 GICS sector indices: Consumer Discretionary Sector, Consumer Staples Sector, Energy Sector, Financials Sector, Health Care Sector, Industrials Sector, Information Technology Sector, Materials Sector, Real Estate Sector, Communication Services Sector, and Utilities Sector. Returns of the broad market are represented by the S&P 500. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results.