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Goldman: Hedge funds recover, mutual funds still struggling

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The S&P 500 climbed 1.2% during the second quarter to end near 2100, but it might not gain any more this year. In fact, investors should prepare for a rocky second half of the year, according to Goldman Sachs analysts.

S&P 500 tumbles following Brexit

In their July 5 “US Quarterly Chartbook,” analyst David Kostin and team note that the S&P 500 tumbled 5% after the Brexit vote before rallying to return 1.8%, including dividends, in the second quarter. Year to date, the index has returned 3.8%.

They note that Defensive sectors outperformed again in the second quarter as Telecom climbed another 8%. The sector is now up 25% year to date, they add. Additionally, Utilities increased 7% in the second quarter and is up 23% year to date, while Healthcare reversed course in the second quarter to erase the losses collected in the first quarter. The sector is now flat year to date. Financial Services is so far the obvious laggard among the main sectors in the S&P 500 as it has declined 5% year to date.

Amazon a leader in fastest sales and earnings growth

Looking at individual stocks, Kostin and team report that Broadcom, Facebook, Netflix and Amazon have recorded the fastest sales growth among mega-caps. Amazon also had the distinction of having the fastest earnings per share growth among mega-caps. American International Group, Broadcom, American Tower and Facebook were also on Goldman’s list.

The firm reports that the best-performing stocks in the S&P 500 during the second quarter were Newmont Mining, ONEOK, Southwestern Energy, Range Resources and Freeport-McMoRan. The worst-performing stocks in the index were Endo International, CF Industries Holdings, Alexion Pharmaceuticals, Perrigo Company and Regeneron Pharmaceuticals.

Hedge funds recover, mutual funds still struggling

Hedge funds have been struggling to post gains this year, but the second quarter was a little kinder as they recovered some of the deep losses they incurred during the first quarter to land down 1% year to date. Mutual funds are still struggling, however, as the Goldman team reports that just 23% of large-cap core mutual fund managers outperformed their S&P 500 benchmark.

Kostin and team expect the S&P 500 to plunge by 5% to 10% in the second half of this year but rebound back to 2100 by the end of the year. By comparison, consensus suggests that the index will climb 10% over the next 12 months. The S&P 500 climbed by as much as 0.04% to 2100.60 during regular trading hours on Thursday.

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