Ten of 11 S&P 500 sectors suffer their worst month in 2024. Here's what comes next.

By Isabel Wang

Here are the best- and worst-performing stock sectors in April

U.S. stocks closed out their worst month of 2024, with ten out of the S&P 500 index's 11 sectors posting their biggest monthly percentage decline this year.

The large-cap benchmark S&P 500 index SPX and the tech-heavy Nasdaq Composite COMP slumped 4.2% and 4.4% in April to log their first monthly decline since October, as sticky inflation pulled back bets on the Federal Reserve's interest-rate cuts, while a mixed batch of first-quarter earnings reports and escalating tensions in the Middle East added to the market volatility.

The 30-stock Dow Jones Industrial Average DJIA posted a 5% loss in April, the biggest monthly decline since September 2022 on a percentage-point basis, according to Dow Jones Market Data.

The S&P 500 real-estate XX:SP500.60 and healthcare sectors XX:SP500.35 led the declines this month, down 8.6% and 5.2%, respectively. Stocks in the real-estate sector suffered their worst month since September 2022, while stocks in the biotech, pharmaceuticals and health-insurance industries saw their biggest monthly percentage decline since August 2022, according to Dow Jones Market Data.

Steep declines in megacap technology names such as the stocks known as the Magnificent Seven also dragged the broader market down from record highs reached in the first quarter. The S&P 500 information-technology XX:SP500.45 and communication-services sectors XX:SP500.50 were off 5.5% and 2.2% in April, respectively, booking their largest monthly drop since fall 2023, while the S&P 500 consumer discretionary sector XX:SP500.25 fell 4.4% to log its worst month since October, according to Dow Jones Market Data.

At the start of 2024, investors expected the central bank to cut interest rates substantially this year as price pressures eased, but a slew of surprisingly hotter-than-expected inflation data in April forced Wall Street to dial back expectations on the timing of the rate cuts, with some even betting that the first reduction won't come until September, or possibly not at all this year.

That perception also drove Treasury bond yields up alongside the U.S. dollar. The policy-sensitive 2-year Treasury yield BX:TMUBMUSD02Y on Tuesday jumped 7 basis points to 5.043%, its highest level since November. The yield on the 10-year Treasury BX:TMUBMUSD10Y advanced 49.1 basis points to 4.683% this month. That was the largest monthly jump since September 2022, according to Dow Jones Market Data.

The ICE U.S. Dollar Index DXY, which measures the currency's strength against a basket of six rivals, was up for a fourth consecutive month. The greenback advanced 1.7% in April to notch its best month since January and its longest monthly winning streak since September 2022, according to Dow Jones Market Data.

Some of the beaten-down parts of the U.S. stock market in the first quarter outperformed the technology and growth-related sectors this month. The S&P 500 utilities sector XX:SP500.55 was the only bright spot in a sea of red for stocks, up 1.6% month to date. The last time the utilities sector was the only monthly gainer was in October, according to Dow Jones Market Data.

Seasonal rotation strategy

As the calendar turns over to May, investors wonder if it would be prudent to heed the old Wall Street adage to "sell in May and go away" for six months until late October, as stocks are expected to enter a weaker period of the year.

See: 'Sell in May and go away?' This year the calendar 'trick' overlaps with a Biden-Trump rematch.

The "strongest six months of the year," as popularized in the Stock Trader's Almanac, suggest that the price return for the S&P 500 from November through April has recorded the highest average price change of any rolling six-month period. Meanwhile, the "sell in May" adage means that the average May-through-October price returns have historically been weaker, not only for large-cap U.S. equities, but also for the small-cap, developed international and emerging market indices, according to Sam Stovall, chief investment strategist at CFRA Research.

Stovall also said history shows that it has traditionally been smarter for investors to rotate between stock sectors rather than completely retreating from their equity positions for the next six months to avoid the potential market turndown.

Since 1990, when the S&P 500 recorded its strongest six-month return in the November-April period, the cyclical consumer discretionary, industrials, materials, and technology sectors as a group outpaced the market as a whole. However, when the overall market was eking out an advance of 2.1% during the more challenging May-October period since 1990, the defensive S&P 500 sectors such as the consumer staples and healthcare sectors recorded average price gains of 4.1%, according to data compiled by CFRA Research.

The table above shows a hypothetical portfolio that owned an equal weighting of the consumer staples and healthcare sectors from May through October, but then rotated into an equal exposure to the consumer discretionary, industrials, materials and technology sectors from November through April. The portfolio using the seasonal rotation strategy saw higher returns and lower volatility relative to its benchmark S&P 500 index, Stovall said in a Tuesday note.

-Isabel Wang

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04-30-24 1707ET

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