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S&P's Sector Performance Roundup

Within the S&P 500, eight of the 10 sectors advanced in 2007

From Standard & Poor's Equity ResearchThe S&P 500 gained 1.4% in January 2007, signaling an up year for the markets, according to the January Barometer. (Since 1945, whenever the S&P 500 advanced in January, the S&P 500 continued to rise during the remaining 11 months of the year 85% of the time, posting an average price advance of 11.8%.)

Year-to-date through December 13, the S&P 500 gained nearly 4.6%, or about half what it gained on average each year since World War II. So the January Barometer was correct on direction, but off the mark on magnitude. Other markets did better, however, as the S&P MidCap 400 gained 8.0% and the S&P Global 1200 rose nearly 9.0%.

Within the S&P 500, eight of the 10 sectors advanced, led by increases of more than 20% for the energy and materials sectors, versus double-digit declines for the consumer discretionary and financials sectors. About 56% of the industries in the S&P 500 rose on the year (72 of 129), with education services, engineering & construction, and fertilizer companies each gaining more than 95% apiece. The worst performers were department stores, homebuilding, motorcycle manufacturers, real estate management & development, and thrifts & mortgage finance companies, which were each down 30% or more on the year.

Factors whipsawing the equity markets can be remembered by the initials CFO, for Credit, the Fed, and Oil. The S&P 500 suffered its first one-day decline of more than 2% in more than 3.5 years in late February on a sell-off in China and emerging worries over subprime mortgages and their effect on credit availability and future earnings growth. We have experienced 10 more such one-day declines, as well as a summer swoon of 9.5% and a November nosedive of 10%. Adding to these woes were oil prices that approached $100 per barrel, and gold, which soared to nearly $850 per ounce. The Fed stepped in to add some monetary and psychological stability by cutting rates three times (we think they’ll cut again in January).

The only thing left is for the "500" to reach the Standard & Poor’s Investment Policy Committee year-end 2007 target of 1560, which would represent a 10% price appreciation from the 1418 closing value in 2006. It would place us in a position to reach our year-end 2008 target of 1650, a 6% gain for the coming year.

Stovall is chief investment strategist for Standard Poor's Equity Research Services .

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