A sector represents a high-level way in which analysts and investors group similar companies together. Analyzing Standard & Poor’s Depositary Receipts (SPDRs) serves as one of the best proxies to determine the best-performing areas of the economy. Below is a performance summary of the nine sectors it tracked for the period ended Dec. 31, 2013:

TOTAL SECTOR RETURNS as of 12/31/2013

Source: State Street Global Advisors

The above list starts with the best performer (consumer discretionary) for 2013 and works its way down to the worst performer (utilities). Very generally, the strong stock market performance for the year (the S&P 500 returned better than 30% including dividends) was attributed to a robust recovery from the Great Recession, government regulations (such as Obamacare health exchanges even though they weren't fully implemented) and investor beliefs that the worst of the credit crisis had finally passed. Another factor was the U.S. economy's strength versus international markets, including European struggles due to high unemployment and slowing growth in Asia (China).

The Best Sector Performers

Below is an overview of the top-performing sectors for the year and more specific reasons for their strength.

Consumer Discretionary

The consumer discretionary sector contains industries and firms that are heavily influenced by ups and downs in the economy. Because the goods are of a discretionary nature, consumers want them but don’t need to have them if money becomes tight. This space performed well because of expectations that the economy is moving from recovery into expansion mode. Increasingly higher consumer confidence over the course of the year led to higher sales in automobiles, travel and luxury goods. Stock valuations also started the year quite reasonably, which helped contribute to the strong sector performance for 2013. (Source: click here.)

Health Care

The health-care space is relative easy to understand. Key industries include hospitals, pharmaceutical and biotechnology companies, as well as drug and equipment retailers and distributors. Positive biotechnology developments, including Google's decision to found Calico to develop therapeutic solutions to combat aging, have helped drive the entire sector forward as investors bid up the shares of companies with positive drug development news. In terms of government regulation, the Affordable Care Act passed in 2010, and a Supreme Court decision in October 2012 upheld most of its key components. As such, 2013 marked a year where the market began to move forward as opposed to fighting the Act’s overall existence. In other words, health care started returning to its steadier historical performance that operates somewhat independent of the economic cycle. (Sources: here and here.)


As dry as it sounds, the industrial sector consists of companies that make and distribute capital goods. Examples include airplanes and related components, industrial machinery and engineering know-how. As with consumer discretionary names, the economic recovery helped boost the operations of industrial firms. The largest firms, including General Electric and United Technologies, also benefited from cost cutting and belt tightening during the Great Recession. Additionally, investor enthusiasm for fracking and energy independence grew. Industrial firms are planning to expand into oil and gas extraction in large shale resource areas in Texas, North Dakota and Pennsylvania. (Source: here.)


Financial firms operate in the banking industries, consumer and commercial finance, and asset management, just to name a few. The key components behind the finance sector's strength during 2013 were historically low valuations and improving fundamentals. Pessimism remained as some of the large players including Bear Stearns, Lehman Brothers and Washington Mutual literally disappeared during the credit crisis. But the competitive environment has favored those that survived and include Morgan Stanley, Citigroup and JPMorgan Chase. Again on the regulation front, the Dodd Frank Act, passed in 2010, had let financial firms adjust to the sweeping reforms by 2013. At this point, many of the related regulations are in place. (Sources: here and here.)

Consumer Staples

The consumer staple sector is a mirror opposite to the consumer discretionary space. Firms in this sector are much less sensitive to the business cycle and economic ups and downs. Food companies are a prime example, with tobacco and personal products other well-known areas. Kraft Foods, Procter & Gamble (NYSE: PG) and Altria Brands (NYSE:MO) are some of the larger players in the space. In contrast to the other sectors, valuations weren’t low at all during 2013. Instead, investors remained committed to more stable firms and sought their above-average dividend yields in the face of historically low interest rates.

Predictions for 2014

For the coming year, the high valuations and expectations for higher interest rates put the continued strong performance of consumer staples space at risk. Consumer discretionary stocks should still perform as long as the economy continues to improve. Financial valuations still look quite reasonable, and there will be plenty of health-care winners from the changes being brought about by the Affordable Care Act.

Bottom Line

The best way to consider investing in the above sectors (especially the ones that continue to have favorable prospects going forward) is to invest in some of the largest and safest individual companies in each space. Investors could start by identifying their favorite industries, then honing in further on the companies with the best growth prospects that also might be trading at reasonable valuations.

Related Articles
  1. Fundamental Analysis

    Analyzing Investments With Solvency Ratios

    Solvency ratios are extremely useful in helping analyze a firm’s ability to meet its long-term obligations; but like most financial ratios, they must be used in the context of an overall company ...
  2. Forex Education

    Why China's Currency Tangos With The USD

    Investopedia explains: It takes two to tango, but unless both partners move in perfect cohesion, a sequence of graceful maneuvers can be reduced to a series of clumsy moves. The latter depiction ...
  3. Insurance

    How Obamacare Is Raising Your Taxes

    There are literally dozens of new, amended or broadened tax provisions under the Obamacare legislation. Find out how your taxes will be affected in the years to come.
  4. Insurance

    Healthcare 2.0 - Obamacare Reboots The Health Insurance Market

    People who want to buy or switch their health insurance will have access to a much wider array of choices through the web, where health insurers will have to compete for our business.
  5. Mutual Funds & ETFs

    What Are SPDR ETFs?

    Spiders are exchange-traded funds based on an index and can be a great vehicle both for making money and hedging against other risks.
  6. Stock Analysis

    Hologic: An Activist Investment Analysis (HOLX)

    Read about a health care company that attracted activist investors Carl Icahn, Barry Rosenstein and Ralph Whitworth at the same time.
  7. Investing

    How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement

    The best proactive plan of action for a stable retirement is to understand medical costs, plan ahead, invest properly, and consider supplemental insurance.
  8. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  9. Personal Finance

    Zika Virus: Latest Advice on Staying Safe

    Zika has hit the U.S. Here’s a quick review of what’s known about the virus, how it spreads, who’s at highest risk and how to avoid it.
  10. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  1. Does dental insurance cover implants?

    Dental implants have become a widely used procedure in dentistry. Despite their popularity, however, they tend to not be ... Read Full Answer >>
  2. Does dental insurance cover dentures?

    Most full dental insurance policies include some restorative coverage, usually meaning that up to 50% of the cost of dentures ... Read Full Answer >>
  3. How does a cost-of-living adjustment (COLA) affect my salary?

    Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees. ... Read Full Answer >>
  4. Can CareCredit be used for family members?

    CareCredit has become a widely used option when it comes to paying for medical procedures, primarily procedures not typically ... Read Full Answer >>
  5. Can a Flexible Spending Account (FSA) be used for dental?

    Flexible Spending Accounts (FSAs) can be used to pay for dental expenses including deductibles and co-payments with pretax ... Read Full Answer >>
  6. Does dental insurance cover braces?

    Most regular dental plans cover little to none of the costs of braces. The primary focus of regular dental plans is prevention ... Read Full Answer >>
Trading Center