Quarterly Sector Update
嚜澧ommentary
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*
←
Consumer Discretionary
←
Consumer Staples
←
Energy
←
Financials
←
Health Care
←
Industrials
←
Information Technology
3
Materials
←
Real Estate
←
Utilities
←
Neutral
Longer
Fundamentals
Time Horizon View
Valuations
Shorter
Relative Strength
+
+
每
Comments
Defensive characteristics may hinder performance
Solid fundamentals may offset elevated valuations
Defensive characteristics may hinder performance
每
+
+
每
Poor fundamentals may be priced in
Recovering fundamentals bolster the outlook
Good combination of fundamentals and valuation
+
+
每
每
每
每
+
每
+
每
+
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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