Deep Dive: Here are the biggest winners in the stock market’s hottest sector in August

Deep Dive: Here are the biggest winners in the stock market’s hottest sector in August

What a difference a couple of months can make. The U.S. stock market is back to setting records, and the information technology sector has been leading the way.

There was an endless flow of gloomy headlines after the S&P 500 SPX, +0.17%  declined significantly from its Jan. 26 closing high, but the benchmark index eventually recovered and started hitting new records on Aug. 24. During August, the index has gained 3.1%, with dividends reinvested. Here’s how the large-cap sectors have performed:

Total returns
S&P 500 sector July 31 through Aug. 28 2018 2017 3 years 5 years
Information Technology 6.0% 20.0% 39% 103% 181%
Telecommunications 4.6% -1.9% -1% 24% 35%
Consumer Discretionary 4.1% 18.3% 23% 61% 117%
Health Care 3.8% 12.7% 22% 35% 104%
Real Estate 2.7% 4.7% 11% 30% 69%
Financials 2.3% 3.3% 22% 58% 99%
Industrials 0.9% 3.2% 21% 56% 90%
Utilities 0.8% 3.0% 12% 37% 70%
Consumer Staples 0.7% -4.2% 13% 23% 57%
Materials 0.2% 0.0% 24% 46% 64%
Energy -2.9% 5.2% -1% 25% 5%
S&P 500 Index 3.1% 9.7% 22% 55% 96%
Dow Jones Industrial Average DJIA, -0.04%   2.9% 7.0% 28% 69% 98%
Source: FactSet

That’s remarkable performance for the month, and the benchmark index is now up 9.7% for 2018. Considering that its average annual return over the very long term is about 10%, this may turn out to be a typically decent year for the market after all, supported in part by U.S. consumers who are feeling good about the economy.

Don’t miss: Stocks in these 5 tech hardware companies should keep flying high

Big tech winners

Here are the 10 S&P 500 tech stocks that have returned the most during August:

Total returns
Company Ticker Industry July 31 through Aug. 28 2018 through Aug. 28 2017 3 years 5 years
Advanced Micro Devices Inc. AMD, -3.91% Semiconductors 37% 144% -9% 1,254% 632%
Autodesk Inc. ADSK, -0.17% Software 22% 50% 42% 230% 325%
Arista Networks Inc. ANET, +0.22% Computer Communications 19% 29% 143% 298% N/A
Take-Two Interactive Software Inc. TTWO, +2.24% Recreational Products 18% 22% 123% 349% 619%
Broadridge Financial Solutions Inc. BR, +0.83% Miscellaneous Commercial Services 18% 48% 39% 163% 392%
Apple Inc. AAPL, +0.42% Telecommunications Equipment 16% 31% 48% 105% 244%
Synopsys Inc. SNPS, +0.29% Software 14% 19% 45% 116% 179%
Nvidia Corp. NVDA, +0.79% Semiconductors 12% 42% 82% 1,129% 1,857%
Salesforce.com Inc. CRM, +0.52% Software 12% 50% 49% 118% 258%
Twitter Inc. TWTR, -1.83% Internet Software/Services 11% 48% 47% 32% N/A
Source: FactSet

You can click on the tickers for more information about each company, including news, price ratios, ratings, filings, charts and financials.

Semiconductors still cheap

Advanced Micro Devices AMD, -3.91%  has been the best tech performer in August. Ryan Shrout just interviewed AMD CEO Lisa Su, who discussed the company’s product-development plans.

There are two semiconductor manufacturers on the list — AMD and Nvidia NVDA, +0.79% Among the S&P 500, this industry group has been volatile, but has also been a remarkably good performer. Here’s a 12-month chart showing the group’s outperformance against the index:

You can see that a short-term investor could have gotten creamed holding semiconductor stocks, even though their overall performance for 12 months have been stellar.

Here’s a five-year chart, smoothing out the volatility and underlining how well the semiconductor industry has performed:

Cheap valuations

Even though the semiconductors have been such good long-term performers, they trade at low valuations as a group to estimated earnings. Here are price-to-earnings ratios, based on weighted mean estimates among analysts polled by FactSet:

• S&P 500: 16.9

• S&P 500 information technology sector: 19.2

• S&P 500 semiconductors subsector: 13.5

• S&P 500 semiconductor and equipment manufacturers: 13.1

One way to play chip makers and their equipment suppliers is the iShares PHLX Semiconductor ETF SOXX, -0.11%  

The ETF has underperformed the S&P 500 semiconductor subsector and the information technology sector over the past 12 months:

But for five years, SOXX has shined:

Don’t react to headlines

You’re no doubt seeing frightening headlines every day about how the bull market must end. Of course it will end. They always do. But if you are a long-term investor with a diversified portfolio, customary performance for the stock market over a period of years will typically be better than it is for other asset classes.

A bearish market guru who is constantly saying the market will fall will eventually be correct. A stopped clock is correct twice a day. Then the guru can brag for years about how he or she predicted the decline, conveniently leaving out all the gains investors would have missed over the years if they had listened to the warnings. Here are two stories illustrating this point:

• Chart of shame: The S&P 500 vs. everyone who said the market was about to crash

• If market reporters were ‘totally honest,’ their stories would look more like this

Also see: As S&P 500 rises to a record, these laggards are expected to come roaring back

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