In this piece, we will look at the best performing decile of stocks in the S&P 500 (SPY) over the course of the third quarter. In a lot of ways the market performance in 3Q was simply a microcosm of year-to-date performance – tech and Amazon (AMZN) led, energy lagged, and financials continued to underperform. Underneath that high-level synopsis lies a different picture. Some hard-hit value stocks in beaten down sectors were among the top performers. While Tech dominated the capitalization-weighted indices, and the capitalization-weighted percentage of this leaders list, a broader subsection of the market saw strong gains in the third quarter.
In the table below, I have listed the 50 best performing S&P 500 constituents in the third quarter.
Here are a few observations from this list:
- Looking at a capitalization-weighted list of the sector components of this leaders list, and the tech leadership once again stands out. Nearly two-thirds of the market capitalization of this leaders list is in the tech sector, but that cap-weighting may overstate the breadth of tech’s position on this leaders list. The presence of Apple (AAPL) on the list, contributed to much of that high weighting of tech on the leaders list. There were only six other tech names on the leaders list, and the high-flying tech sector only had half as many leaders as the Industrials sector (14).
- Nine of the 11 market sectors was represented on the leaders list with only Consumer Staples and Energy missing out. That fact might overstate the breadth of the inclusion on the leaders list, however. Twitter (TWTR) in Communications, Cincinnati Financial (CINF) in Financials, AES Corp (AES) in Utilities, and timberland business Weyerhauser (WY) in Real Estate, were the only representatives in their respective sectors.
- The shift to e-commerce that has become more pronounced by the pandemic has benefited logistics companies. FedEx (FDX) and UPS (UPS) were the 2nd and 4th best performers on the quarter. Trucking firm C.H. Robinson (CHRW) at #24 was also among the best performers on the quarter.
- In a sharp difference from the last crisis in 2008-2009, housing-related stocks are performing quite well in this environment. Homebuilders D.R. Horton (DHI), Pulte (PHM), Lennar (LEN), and NVR (NVR) ranked 14th, 15th, 22nd, and 40th respectively. Appliance maker Whirlpool (WHR) at #7 and home improvement and security company Fortune Brands Home & Security (FBHS) at #16 are also benefiting from the strength in the residential sector. Carrier (CARR) and Trane (TT), both recent spin-off makers of HVAC equipment, were also high on the leaders list. Supported by tight supply, low interest rates, and perhaps the haven impact of homes during a pandemic lockdown, residential housing-related stocks are performing well.
- A number of apparel retailers – L Brands (NYSE:LB), Gap (GPS) – and apparel companies – Nike (NKE), Hanesbrands (HBI), PVH (PVH) – also made the leaders list as consumer spending has strengthened.
- Beaten-down names that faced unique pressure in the crisis, like cruise line company Royal Caribbean (RCL), casino operator MGM Resorts (MGM), restaurateur Darden (DRI), and office equipment maker Xerox (XRX), all bounced back in the third quarter.
I hope this list of market leaders is an interesting view for Seeking Alpha readers. Third quarter leadership was a little more nuanced than the cyclical rebound in the second quarter, or the tech and defensive leadership in the first quarter. I will be taking a continued look at the winners and losers in 3Q to suss out performance trends over the next few days.
Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.
Disclosure: I am/we are long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.