The 2020 U.S. equity picture looks different depending on the lens through which it is viewed. The S&P 500 was down 1.9% year-to-date through July 8, while the Nasdaq composite index was up 16.9%. The difference? Sector allocation. Technology stocks have proven more resilient in the recent downturn than traditional "safe" sectors like utilities and REITs as they continue to overtake the cap-weighted indexes.
So long, friend: The 18.8-percentage-point gap between the year-to-date returns of S&P 500 and the Nasdaq is the widest since 2003. While a similar spike was observed over rolling six-month periods during the global financial crisis, 2020's difference is more than 4 percentage points higher.
Not like the other: Sector exposure played a large part in the discrepancy, particularly regarding exposure to technology, energy and financials. The S&P 500 was underweight tech compared with the Nasdaq and significantly overweight in energy and financials.
New economy: The technology sector has been a catalyst for the S&P 500 in 2020, outperforming its ex-technology sibling with slightly less volatility. The difference highlights the impact of heavyweights Microsoft, Apple and Nvidia, and the drag of energy and financials.
Different picture: The downturn in late 2018 had a more traditional flight to safety, with only utility-sector funds seeing net inflows. This year the technology, communications and health sectors are attracting interest.
Sources: Bloomberg LP, Morningstar Inc.
