13 Mar 2020
Posted in Business Fundamentals
Information technology sector leads S&P 500 charge, reveals GlobalData
Information technology and energy stocks ended up being at opposite ends of the growth spectrum over the period between 31 Jan 2019 and 31 Jan 2020, and in the S&P 500 index, according to an analysis by GlobalData, a leading data and analytics company.
As of 31 Jan 2020, information technology accounted for 14.2% of the index constituents, followed by industrials (14%), financials (13.2%), consumer discretionary (12.6%), healthcare (12%), consumer staples (6.6%), real estate (6.2%), energy (5.6%), utilities (5.6%), materials (5.6%) and communication services (4.4%).
The S&P index had a robust 12 months, as the aggregate market cap gained 17.9% and reached US$28.4 trillion, as of 31 Jan 2020, of which the top ten stocks (Apple, Microsoft, Amazon, Alphabet, Facebook, Berkshire Hathaway, JPMorgan, J&J, Visa, and Walmart) accounted for 25.6%. The signing of the US-China initial trade deal also came in as a boost to markets across the world.
During the period, all the sectors in S&P 500 performed well except energy. Information technology, utilities, and communication services were the stand-out performers with market cap growth of over 20% each.
In particular, Information technology stocks witnessed an exceptional surge of around 43% in aggregate market cap. There were 17 stocks, which reported over 50% growth in their market values, that helped achieve this feat. These included Global Payments (+230.7%), FIS (+157.9%), Fiserv (+144%), AMD (+114.5%), Apple (+72.6%), ANSYS (+71%), Nvidia (+65%), Lam Research (+64.2%), and Qualcomm (+62.6).
The sector witnessed very high-profile M&As, including Global Payments’ acquisition of TSYS, Fidelity National Information Services’ acquisition of Worldpay, Fiserv’s acquisition of First Data, and Salesforce’s acquisition of Tableau.
Looking at utilities growth, the sector has been responding well to the investor’s sentiment, which has become more serious about climate change.
Parth Vala, Company Profiles Analyst at GlobalData, comments: “Steps taken by companies in response to climate change, in terms of reducing carbon footprint, going carbon neutral or providing clean power, have been increasingly taken into account by investors while making any investment decisions.
“Traditionally considered as safer investments, multiple interest rate cuts by the federal reserves and lower US treasury yields have also helped utilities stocks to flourish over the previous year.”
Market cap of communication services sector also grew significantly by 21.5%. Stocks that grew more than 15% over the period were Charter Communications (+50.4%), Walt Disney (+50.2%), DISH Network (+34%), Alphabet (+26.8%), AT&T (+24.7%), Activision Blizzard (+24.6%), Facebook (+21%), Comcast (+18.8%) and Take-Two Interactive Software (+17.5%). Just like utilities, communication services is also considered as a defensive sector and known to give higher market returns under lower yields and interest rate cuts.
In the energy sector, 25 out of 28 stocks were in the red over the previous year. Parth adds: “Events that weighed heavily on the market performance included oil supply security that was back in forefront post attacks on Saudi Arabian oil facilities, decline in oil supply from two major players – Iran and Venezuela – due to economic sanctions, low capital spending and operating cash flows, and subdued growth in demand.
“It is expected that 2020 is again going to be one more challenging year for the sector due to expected decline in productivity in US shale fields amidst global economic slowdown.”