Key Takeaways
- The S&P 500 fell 3.65% in the third quarter of 2023.
- The worst sectors of the index during the quarter were utilities at -10.09%, real estate at -9.66%, and consumer staples at -6.61%.
- The best-performing sectors of the third quarter in the S&P 500 were energy, growing 11.33%, and communication services, rising 2.84%. Financial services sat at -1.6%.
In the third quarter, the S&P 500 was dragged down by sectors that fell victim to inflation and higher interest rates, such as utilities, real estate, and consumer staples. Growth seen through massive gains in the energy sector and supplemented by communication services increases was not enough to make up for other losses.
Overall the S&P 500 fell 3.65% in the third quarter of 2023 but was up more than 12% year-to-date.
Worst Performing Sectors
Utilities
The utilities sector took the second biggest loss in the index dropping 10.09% throughout the quarter.
The utility sector decline was headed by The AES Corporation (AES) stock falling 26.68% and NextEra Energy (NEE) stock dropping 22.79%.
Generally, the utility sector is considered a stable investment, but historically inflation and high interest rates can take a toll on the sector. Utility companies typically carry higher debt in order to finance their capital expenditure so higher rates tend to adversely impact those stocks. Higher rates also make bonds more attractive, and utility stocks might lose investors to that shift.
As the Fed increased interest rates to minimize the impact of inflation throughout the quarter, the utility sector fell. In September, the 10-year U.S. Treasury yield rose for the first time since before the Global Financial Crisis making bonds more appealing to those looking for a stable investment.
Real Estate
Real estate dragged down the S&P 500 in the third quarter as the worst-performing sector of the index falling 9.66% in three months.
Broad economic factors including high interest rates weakened the sector at large though the companies that suffered the biggest losses were Crown Castle (CCI) and Extra Space Storage (EXR) falling 19.23% and 18.32% respectively.
Consumers faced high mortgage rates as the Federal Reserve continued to combat inflation by hiking interest rates. Home affordability hit its lowest point in 40 years in September. On the other hand, back-to-office plans have not picked up steam enough to revive the demand for office spaces, putting strain on commercial real estate.
Consumer Staples
The consumer staples sector fell 6.61% in the third quarter. The drop was led by discount store stocks, Dollar General (DG) and Dollar Tree (DLTR) which fell 37.68% and 25.82% respectively.
Consumer staples stocks are usually a defensive sector because, in theory, they’re providing consumers with products that they typically need. However, this time around, consumer staples stocks have been hurt by a number of factors.
Higher inflation affects the companies that use commodities to produce goods and have to be mindful of passing those costs off to consumers in the form of higher prices. Analysts at Fidelity say that despite a strong labor market and robust consumer spending so far, higher oil prices—a key ingredient in products as well as packaging—could hurt companies.
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Best Performing Sectors
Energy
Energy stocks saw the most growth of any sector in the S&P 500 during the third quarter with an 11.33% change. This massive growth comes amid a surge in the price of oil driven by a historically low supply.
Energy stocks made up the top six best-performing stocks of the S&P 500 in the third quarter of 2023.
In the past three months, the top-performing stocks of the index were in the energy sector, specifically Marathon Petroleum (MPC) growing 29.79%, followed by Phillips 66 (PSX) at 25.97%.
Communication Services
Significantly behind energy, communication services were the second-best-performing sector of the quarter with 2.84% growth.
This growth was supported by companies like Charter Communications (CHTR) which grew 19.72% and Activision Blizzard (ATVI) rose 11.07%.
Financial Services
Financial services was the third best-performing sector during the quarter, but it did not grow. The sector fell 1.6% during the three-month period.
While the financial sector failed in regard to overall growth, there was some positive movement for individual stocks within the sector. Zions Bancorp (ZION) was the best-performing stock in the S&P 500 of the quarter and increased 29.9%.
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