Although the S&P 500 got hammered in 2015, this year things look a little brighter. The key benchmark index only returned 1% in 2015, including dividends. Apple was among the laggards for the year, which means even though it ended the year in the red by only a small percentage, it probably had a meaningful impact on the index’s returns because of its massive size. Of course the dividends the iPhone maker paid out also helped on the positive side.
S&P 500 returns by sector
Goldman Sachs analyst David Kostin and his team released the latest edition of their “US Quarterly Chartbook” this week. In their analysis, they found that the Consumer Discretionary sector and the NASDAQ 100 both outperformed the low market breadth environment, with the former gaining 10% and the latter adding 8% year over year.
In 2015, the best-performing stocks in the S&P 500 were Netflix, Amazon and Nvidia, while the worst-performing stocks were Chesapeake Energy, CONSOL Energy and Southwestern Energy Company. The biggest stocks in the S&P 500 were Apple, Google, Microsoft, ExxonMobil and General Electric, while the stocks with the lowest valuation in the index were Navient, American Airlines, ENSCO and United Continental.
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Looking at hedge fund strategies, event-driven funds lagged by 7% while the Energy sector underperformed the market by 21% for the full year with the worst performance coming in the second half of the year. Here’s a broader look at the sectors, styles and strategies that worked in 2015:
The Goldman Sachs team is expecting an improvement this year, however. They’re projecting a 5% return for the S&P 500 to end at 2100 this year with 2% of the returns coming from dividends.
IT, Financials sectors recommended
The analysts recommend overweight positioning on the Information Technology and Financials sector and underweight positioning on Energy, Materials, Utilities and Consumer Staples. They add that the Financials sector appears to be the most undervalued sector currently. Here’s a look at how the markets are currently valuing the sectors in the S&P 500:
Facebook, Netflix, Adobe among the favored stocks for 2016
They prefer stocks with mostly domestic sales and strong balance sheets and recommend that investors buy domestic revenues and sell international revenues. They recommend buying total cash returns, the NASDAQ 100, and high quality stocks and selling the S&P 500. They expect Facebook, Netflix, and Adobe Systems will be among the mega-caps with the fastest sales growth this year. Here’s a look at the stocks they expect to see the most sales growth this year:
They believe Amazon, Netflix and Adobe will be toward the top in terms of mega-cap earnings per share growth. Here are the stocks they expect to see the biggest earnings growth in 2016:
All graphs and charts in this article are courtesy Goldman Sachs.