Tags: 2012 | best | worst | sectors

The 3 Best (& Worst) Sectors of 2012

By Patrick Watson   |   Friday, 28 Dec 2012 07:48 AM

The books aren’t completely closed for the year yet, but let’s look at the 2012 leading and lagging equity sectors. It was a year in which even the worst performers weren’t so bad. We’ll start at the top.

Financial services stocks and exchange-traded funds handily outperformed broad-market benchmarks this year. Bank stockholders should give Federal Reserve Chairman Ben Bernanke a big hug. The Fed’s apparently endless faith in quantitative easing allowed bankers to pad their profit margins.

Next in line is the consumer discretionary group. This may seem surprising at first; how, in such a weak economic recovery, can luxury goods producers do so well? Housing is a big part of the answer. The homebuilder stocks shot higher, as did related companies like appliance manufacturers. Once again, you can thank the Fed. They engineered record-low mortgage rates and a mini-boom in residential real estate.

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The third-best sector of the year was healthcare. Once again help came from Washington when the Supreme Court permitted Obamacare to move toward implementation. It may not be good news for patients or taxpayers, but so far the new spending looks great for hospitals, pharmaceuticals and medical equipment companies.

Now, let’s look at the lagging sectors. Utilities may end as the only Standard & Poor’s 500 group with an actual loss for the year. If so, it should be a small one, related mostly to investors turning their attention elsewhere. Utility stocks are still reliable income producers in most cases.

Consumer staples, another traditionally defensive sector, was also low on the shopping list the last 12 months. Drought-heightened food prices appear to have made consumers tighten their belts. Intense competition by the top retailers also seems to have reduced profits for smaller, less-efficient chain stores.

Energy is the third subpar sector for 2012. Crude oil, while not exactly “soft,” could not sustain a price above $100. Some energy stocks did very well, but not well enough to bring the sector benchmarks ahead of the market. Weakness in exploration and energy service names looks like the prime culprit.

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That’s the last year; what about the next? The one thing that’s always a safe bet for investors is change. This time a year ago the financial sector didn’t look so attractive. Now it’s on top of the list. I don’t know where the next breakout will be, but I bet 2013 brings one.

Good luck and Happy New Year!

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