How to invest in one of the hottest stock market sectors while cutting your risk

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Here’s a summary of how the 11 sectors of the S&P 500
SPX
have performed his year and how forward price-to-earnings ratios compare to valuation levels at the end of 2021:

Sector or index

2023 return

2022 return

Return since end of 2021

3-year return

5 year return

Forward P/E

Forward P/E at end of 2021

Communications Services

32.0%

-39.9%

-21%

22%

55%

16.8

20.9

Information Technology

28.2%

-28.2%

-8%

70%

143%

25.1

28.1

Consumer Discretionary

19.4%

-37.0%

-25%

26%

51%

25.2

34.2

Consumer Staples

2.4%

-0.6%

2%

44%

79%

20.5

21.4

Industrials

2.3%

-5.5%

-3%

66%

46%

18.0

21.4

Materials

1.4%

-12.3%

-11%

56%

46%

16.5

16.6

Real Estate

-1.1%

-26.1%

-27%

23%

41%

16.8

25.3

Healthcare

-3.4%

-2.0%

-5%

36%

72%

17.3

17.2

Financials

-3.8%

-10.5%

-14%

57%

31%

12.7

16.1

Utilities

-5.4%

1.6%

-4%

28%

59%

17.3

20.4

Energy

-8.6%

65.7%

51%

136%

31%

10.1

11.1

 

S&P 500
SPX
10.1%

-18.1%

-10%

49%

69%

18.2

21.5

Dow Jones Industrial Average
DJIA
2.0%

-6.9%

-5%

0%

0%

16.8

18.9

Nasdaq Composite Index
COMP
21.7%

-32.5%

-18%

41%

80%

26.2

32.1

Source: FactSet

The communications services sector has been this year’s best performer, but technology stocks have really been in the lead.

Two tech giants — Alphabet
GOOGL
and Meta Platforms
META
— are in the communications sector, while Amazon.com
AMZN
is in the consumer discretionary sector, which has also been staging a comeback following a dismal 2022. For perspective, returns from the end of 2021 are shown. Meanwhile, forward price-to-earnings ratios, based on estimates among analysts polled by FactSet, are considerably lower for most sectors than they were at the end of 2021. But stocks cannot be said to be cheaply valued in general. The S&P 500’s current forward P/E of 18.2 compares to a 20-year average of 15.7.

Another tech-oriented name that has soared this year is Tesla
TSLA,
which is part of the consumer discretionary sector. The stock has risen 47% in 2023, following last year’s 65% drop.

In this week’s ETF Wrap, Christine Idzelis looks at several ways to make broad investments in the electric-vehicle space, as well as the semiconductor industry and tech in general.

Here’s a fascinating fact from Joseph Adinolfi: Apple is now worth more than the entire Russell 2000 Index
RUT.
Apple’s
AAPL
stock has returned 35% this year, while the Russell 2000 is up only 2%.

Tech company news:

More about Tesla, Musk and EV competition

Tesla CEO Elon Musk poses prior to his talks with French President Emmanuel Macron, May 15, 2023 at the Elysee Palace in Paris. Musk was in Austin, Texas the next day for Tesla’s annual meeting.


AP

Tesla had its annual meeting on Tuesday and there was some (apparently) good news for people who have been waiting years for the Cybertruck. Here are four other takeaways from Tesla’s annual meeting, from Claudia Assis.

More:

AI sets the stage for competition

Experts predict artificial intelligence (AI) will change every aspect of everyday life. These three trends could accelerate the adoption of AI.

We are at the start of what may be a long period of innovation and improved services from expanding use of artificial intelligence. Here is a broad screen of global stocks highlighting the 20 AI-oriented companies expected to increase sales most rapidly through 2025.

And here is a look at which of the largest AI players might win the race, according to analysts at Morgan Stanley.

Is it too late to invest in Warren Buffett’s second favorite country?

Companies in Japan make up more of Berkshire Hathaway’s
BRK
portfolio of stocks than those of any country except for the U.S. Japanese stocks have staged a strong rally this year. Berkshire CEO Warren Buffett recently visited Japan. Now William Watts considers whether or not it is too late to jump aboard the Japan bandwagon.

More on markets:

How about some mild winters for a change?

Amelia Island in Florida is close to Jacksonville International Airport


Getty Images/iStockphoto

Jessica Hall writes the Where Should I Retire? column. This week she helps a a couple who wish to become snowbirds, living during the winter in a pleasant climate, but away from big cities while still near a major airport. Here are two suggestions from the MarketWatch retirement locations tool, which you can use to make your own custom search.

Here’s what happens if you continue working while collecting Social Security


MarketWatch photo illustration/iStockphoto

Alessandra Malito writes the Help Me Retire column. This week she helps a reader who might begin taking Social Security even though he is still working. Here’s how his wages and investment income can affect his Social Security payments.

More about retirement planning: ‘It’s like getting married on the first date.’ How can you trust financial planning if you don’t know exactly what you’re paying and what you’re getting?

Retailers begin to report and the word is… mixed

Home Depot predicts a sales decline this year, following several years during which store traffic was boosted by federal stimulus.


AFP via Getty Images

Home Depot
HD
has been a consistent performer for many years, showing continual increase in comparable-store sales. But now that has changed — the company reported a 4.5% decline in comparable-store sales, for its worst performance by this measure since 2009. Here’s what the company expects for its full fiscal year.

Target
TGT
reported an increase in comparable-store sales, but also lowered its earnings guidance, citing “softening sales trends.”

On a more positive note, TJX
TJX
reported a 3% increase in comparable-store sales.

More news about retailers:

A survey of the U.S. housing market


Getty Images

Aarthi Swaminathan explains why people are staying put.

Read on: Can California be viable for someone who is single and earns $60,000 a year?

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