Citi’s latest Monday Morning Musings report, authored by analysts Tobias M Levkovich, Lorraine M Schmitt and Christina Wood, notes how differently the S&P 500 sectors have performed in 2013 compared to expectations at the beginning of the year.

How S&P 500 sectors performed YTD

In the chart below, the Health Care sector has clocked the highest percentage change of 37.99, a performance few would have expected.

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However, Consumer Discretionary turned in a predictable return considering that so much money exited bonds and found this a logical alternative – also helping was the recovery in the economy, of course, and more consumers’ spending power.

The turmoil in bond yields (chart below) took its toll on sectors such as Utilities and Telecom Services, which posted negative returns.

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The negative performance of Information Technology is attributed to underperformance from hardware heavyweights Apple Inc.(NASDAQ:AAPL) and International Business Machines Corp.(NYSE:IBM) queering the pitch for the sector.

“However, technology names should benefit from a probable double-digit gain in 2014 tech capex based on numbers gleaned from 700 publicly traded non-financial companies that Citi’s US equity research analysts follow,” says the report.

Insurance (Finance Sector) was the stellar performer across all industry groups clocking a rise of nearly 43%.

Materials, Energy, Industrials and Tech: problem areas

On the other hand, Materials turned in a negative 17.53% when logically it should have been an investor favorite considering investors’ bullish appetite for risk. Energy, with -18.9%, was in the same boat, with the sectors facing headwinds due to events far from home, mostly in the emerging countries.

Citi expect that Materials, Energy, Industrials and Tech could benefit from better ISM readings over the next couple of months – the ISM has more impressive predictive correlation especially for these sectors with a six-month lag, say the analysts.

On Energy, Citi make a rather interesting observation: “There seems to be some delinking between oil prices and Energy stocks for the first time this year which is disconcerting (see Figure 11), though it may reflect the large integrated energy companies’ most recent stock price moves.”

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