Quarterly Sector Update

Commentary

Fourth Quarter 2021

Quarterly Sector Update

PRIMARY CONTRIBUTOR

Denise Chisholm

Director of Quantitative Market Strategy

Quantitative Research & Investments

Fidelity Management & Research Company

Not FDIC Insured ? May Lose Value ? No Bank Guarantee

Performance Summary: Rotation Out of Commodity Cyclicals

The S&P 500 eked out a small gain in the third quarter, as financials stocks led the market. Commodity-related cyclical sectors

lagged, including energy, industrials, and materials. Instead, investors appeared to favor communication services, and other

sectors, including utilities and health care, expected to hold up relatively well if economic growth proves disappointing.

Performance as of 9/30/21

Latest Quarter

1-Year

3-Year Annualized

Dividend Yield

Weight in

S&P 500?

Communication Services*

1.6%

38.4%

20.1%

0.8%

11.3%

Consumer Discretionary

0.0%

19.1%

16.3%

0.5%

12.4%

Consumer Staples

-0.3%

11.3%

11.9%

2.8%

5.8%

Energy

-1.7%

83.0%

-6.8%

4.1%

2.7%

Financials

2.7%

59.1%

13.4%

1.6%

11.4%

Health Care

1.4%

22.6%

12.4%

1.5%

13.3%

Industrials

-4.2%

29.0%

9.8%

1.4%

8.0%

Information Technology

1.3%

28.9%

27.3%

0.8%

27.6%

Materials

-3.5%

26.5%

13.4%

1.8%

2.5%

Real Estate

0.9%

30.5%

14.7%

2.3%

2.6%

Utilities

1.8%

11.0%

10.3%

3.2%

2.5%

S&P 500?

0.6%

30.0%

16.0%

1.3%

Sector

2

Past performance is no guarantee of future results. Sectors defined by the Global Industry Classification Standard (GICS?); see Index Definitions for details. Performance

metrics reflect S&P 500 sector indexes. * Changes were made to the GICS framework on 9/24/18; historical S&P 500 communication services sector data prior to 9/24/18, reflect

the legacy telecommunication services sector. The top three performing sectors over each period are shaded green, the bottom three are shaded red. It is not possible to invest

directly in an index. All indexes are unmanaged. Percentages may not total 100% due to rounding.

Source: Haver Analytics, FactSet, Fidelity Investments, as of 9/30/21.

Scorecard: Energy, Financials, and Discretionary On Top

Low valuations continue to make energy appealing, while poor fundamentals may already be priced in. Recovering

fundamentals boost the outlook for financial stocks, which could benefit further if interest rates rise. Consumer discretionary

stocks have solid fundamentals, which may help offset high valuations. On the other hand, weak fundamentals and high

valuations could be headwinds for utilities and real estate, especially if rates increase.

Strategist View

Sector

Overweight

Underweight

Communication Services*

¡ö

Consumer Discretionary

¡ö

Consumer Staples

¡ö

Energy

¡ö

Financials

¡ö

Health Care

¡ö

Industrials

¡ö

Information Technology

3

Materials

¡ö

Real Estate

¡ö

Utilities

¡ö

Neutral

Longer

Fundamentals

Time Horizon View

Valuations

Shorter

Relative Strength

+

+

¨C

Comments

Defensive characteristics may hinder performance

Solid fundamentals may offset elevated valuations

Defensive characteristics may hinder performance

¨C

+

+

¨C

Poor fundamentals may be priced in

Recovering fundamentals bolster the outlook

Good combination of fundamentals and valuation

+

+

¨C

¨C

¨C

¨C

+

¨C

+

¨C

+

Other predictive valuation indicators still compelling

Strong fundamentals increasingly priced in

Fundamental indicators and valuation not predictive

Elevated valuation likely to be a headwind

Defensive characteristics may hinder performance

Past performance is no guarantee of future results. Strategist view, fundamentals, valuations, and relative strength are based on the top 3,000 U.S. stocks by market capitalization. Sectors defined by the

GICS; see Index Definitions for details. * Historical communication services data has been restated back to 1962 to account for changes to the GICS framework made on 9/24/18. Strategist view is as of the

date indicated based on the information available at that time, and may change based on market or other conditions. This is not necessarily the opinion of Fidelity Investments or its affiliates. Fidelity does not

assume any duty to update any of the information. Overweight and underweight views represent opportunistic tilts in a hypothetical portfolio relative to broad market

sector weights. Sector weights may vary depending on an individual¡¯s risk tolerance and goals. Time horizon view factors are based on historical analysis and are not a

qualitative assessment by any individual investment professional. The top three sectors based on each time horizon view metric are shaded green, the bottom three are

shaded red. See Glossary and Methodology for details. It is not possible to invest directly in an index. All indexes are unmanaged. Source: Haver Analytics, FactSet,

Fidelity Investments, as of 9/30/21.

Fundamentals: Tech, Materials, and Consumer Discretionary Lead

Technology continued to lead the fundamental rankings, coming in first on return on equity and free cash flow. Materials

and consumer discretionary also scored well. Real estate was again the worst performer by fundamental measures, ranking

10th in earnings per share and return on equity. Energy and utilities also placed low on the fundamental rankings.

EBITDA Growth (Last 12 Months)

Top 3,000

Cons. Stpls.

Industrials

Utilities

Energy

Energy

Industrials

Cons. Stpls.

Cons. Disc.

Utilities

Comm. Serv.

Technology

Health Care

Materials

Materials

Top 3,000

Health Care

Comm. Serv.

30%

20%

10%

0%

-10%

-20%

Technology

Energy

Real Estate

Utilities

Health Care

Industrials

Comm. Serv.

Free-Cash-Flow Margin (Last 12 Months)

Materials

Top 3,000

Financials

Cons. Disc.

Cons. Stpls.

30%

20%

10%

0%

-10%

Technology

Return on Equity (Last 12 Months)

Cons. Disc.

*

50%

40%

30%

20%

10%

0%

-10%

Energy

Real Estate

Health Care

Cons. Stpls.

Industrials

Comm. Serv.

Technology

*

Utilities

*

Financials

*

Cons. Disc.

*

Materials

50%

40%

30%

20%

10%

0%

-10%

Top 3,000

EPS Growth (Last 12 Months)

Fundamentals: Strong and improving fundamentals historically have been an intermediate-term indicator of sector performance.

Our analysis gives a view of how each sector has done in terms of growth and profitability.

4

Past performance is no guarantee of future results. EPS = earnings per share. EBITDA = earnings before interest, taxes, depreciation, and amortization.

* EPS growth values over the last 12 months for materials, consumer discretionary, financials, top 3,000 stocks, and energy were 174.4%, 166.0%, 133.8%, 81.8%, and -71.0%, respectively. The financials and

real estate sectors are not represented in the EBITDA growth or free-cash-flow margin charts because of differences in their business models and accounting standards.

See Glossary and Methodology for further explanation. Sectors based on the top 3,000 U.S. stocks by market capitalization and defined by GICS. Communication services

data restated back to 1962.

Source: Haver Analytics, Fidelity Investments, as of 9/30/21.

Valuations: Energy, Financials, and Materials Look Cheap

Energy had the cheapest valuations, ranking least expensive by price-to-earnings (P/E), price-to-book (P/B), and free-cash-flow

yield. Financials and materials also look relatively inexpensive. The most expensive sectors were consumer discretionary, real

estate, and industrials.

Current: Green/Red = Cheap/Expensive Relative to Historical Average

Technology

Materials

Industrials

Health Care

Energy

Cons. Stpls.

Cons. Disc.

Comm. Serv.

Utilities

Technology

Real Estate

Materials

Industrials

Health Care

Financials

Energy

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Cons. Stpls.

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Cons. Disc.

Price-to-Sales Ratio; Forward Price/Sales Ratio Relative to Top 3000 Stocks

Comm. Serv.

Price-to-Book Ratio; Forward Price/Book Ratio Relative to Top 3000 Stocks

Valuations: On their own, valuations are only a moderately effective indicator of future sector performance,

but when combined with other factors, they can be a useful tool in determining the risk-and-reward profile.

5

Past performance is no guarantee of future results. Free-cash-flow yield reflects free cash flow divided by market price per share; it is the inverse of the price-to-free-cash-flow ratio. Historical

range excludes the top and bottom 5%. Green or red circles indicate if current levels are below or above the historical average, which excludes the top

and bottom 5%. The financials and real estate sectors are not represented in the free-cash-flow yield or price-to-sales charts because of differences in their business

models and accounting standards. See the Glossary and Methodology for further explanation. Historical range since January 1962. Sectors based on the top 3,000 U.S.

stocks by market capitalization and defined by GICS. Communication services data restated back to 1962. Source: Haver Analytics, Fidelity Investments, as of 9/30/21.

Utilities

Utilities

Technology

Materials

Industrials

Health Care

Utilities

Technology

Real Estate

Materials

Industrials

Health Care

Financials

Energy

Cons. Stpls.

Cons. Disc.

Comm. Serv.

Energy

Free-Cash-Flow Yield; Free-Cash-Flow Yield Relative to Top 3000 Stocks

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

Cons. Stpls.

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

Cons. Disc.

Price-to-Earnings Ratio; Forward Price/Earnings Ratio Relative to Top 3000 Stocks

Comm. Serv.

Historical Range

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