The S&P 500 has served up a 7%-plus return through the first six-and-a-half months of the year. That’s remarkably impressive when one considers the depth of geopolitical conflict, the implication of structural under-employment, the October end of quantitative easing (QE3) and the strong possibility of a significant change to the legislative branch this November.

Naturally, some investment sectors of the economy have outperformed others. Here’s a peek at the 2014 year-to-date results:

Sector ETF Performance (1/1-7/21) in 2014
Approx YTD %
SPDR Select Sector Utilities (XLU)14.2%
SPDR Select Sector Energy (XLE)12.7%
SPDR Select Sector Technology (XLK)10.1%
SPDR Select Sector Health Care (XLV)9.8%
SPDR Select Sector Basic Materials (XLB)8.4%
SPDR S&P 500 (SPY)7.6%
SPDR Select Sector Consumer Staples (XLP)5.8%
SPDR Select Sector Financials (XLF)5.0%
SPDR Select Sector Industrials (XLI)4.3%
iShares U.S. Telecom (IYZ)2.7%
SPDR Select Sector Consumer Discretionary (XLY)1.0%
SPDR S&P Homebuilders (XHB)-6.8%

On the surface, the progress for equities is enviable. The areas that pose the most concern have been areas that I have discussed since January. Housing has witnessed declining sales for the better part of the last 12 months. In a similar vein, inflation-adjusted declines in median family income has damaged the purchasing power of the consumer. Higher food prices have been hitting staples, while part-timers and labor force drop-outs have less ability to acquire nonobligatory goods. What’s more, financial firms remain stingy with respect to lending out reserves, making it difficult to generate profits that have not been goosed by corporate buybacks.

Nevertheless, across-the-board gains have been very respectable. The fact that technology and biotech/pharma-dominant healthcare are pushing the upper echelon of sector investing is a testament to a forward-thinking risk orientation. Demographic shifts in the U.S. and abroad favor healthcare-related assets; technology stocks in today’s world offer a combination of extraordinary growth and satisfactory income that is often difficult to replicate elsewhere. In contrast, utility stocks tend to offer the highest levels of income at the expense of revenue growth. Materials stocks often grow by bounds and leaps when the global economy is rapidly expanding, though income distributions may be less attractive to the dividend enthusiast.

Indeed, my client portfolios have been overweight technology and health care for quite some time. That said, two of my largest client holdings for years used to be Vanguard Information Technology (VGT) and PowerShares Pharmaceuticals (PJP). Early in 2014, though, I downshifted the risk component by moving into First Trust Technology Dividend (TDIV) and SPDR Select Healthcare (XLV). It is by no means a solution to a bearish sell-off that would clobber equities of all stripes, but lower volatility and better valuations provide a bit more sleep-at-night comfort.

One comparison that is worth making here is the similarity in leadership from seven years ago. Specifically, back in mid-July of 2007, the overall market looked relatively healthy. The S&P 500 was up about 9%. Energy and Materials had some of the best performances, while Financials and Consumer stocks underachieved.

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