The S&P 500 wrapped up the first quarter with a gain of 10.2%, marking its strongest first-quarter performance in five years. Additionally, all three major U.S. indices recorded significant quarterly advances. This climb was fueled by optimism surrounding artificial intelligence (AI) stocks and speculation about potential interest rate cuts by the U.S. Federal Reserve in the coming months.

Moreover, the first quarter gains were broad-based, with four sectors notching double-digit gains. The only sector that declined in the first quarter was real estate.

Let’s dive into Q1 2024 performance, sector-by-sector. Note that all returns discussed here are total returns, which include the effect of dividends paid during the quarter.

11 Sector Review

Select Sector SPDRs are targeted exchange-traded funds (ETFs) that divide the S&P 500 into 11 sector index funds. These sectors are Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Materials, Real Estate, Technology, and Utilities. Furthermore, the 11 Select Sector SPDRs represent the S&P 500 as a whole.

Overall, ten of eleven sectors turned in a positive return in Q1. In addition, four of those sectors beat the S&P 500 return. After lagging in 2023, the energy sector returned to the top of all sector returns in Q1.

Here was the sector breakdown for the quarter.

The Leaders

The top three performers in Q1 were the same as the top three performers in Q3 2023.

The star of the quarter was the Energy sector, which returned double digits as energy prices rose during the period. The Energy sector, which led all sectors in 2021 and 2022, was up 13.5% in Q1. Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), EOG Resources (NYSE: EOG), and Schlumberger (NYSE: SLB) are major components of the energy ETF.

In second place was Communication Services. The sector returned 12.7% in Q1. This sector includes diversified telecommunication services, wireless telecommunication services, media, entertainment, and interactive media and services. Components include Facebook (NSDQ: FB), Alphabet (NSDQ: GOOGL), and AT&T (NYSE: T).

The Financial sector gained 12.4% in Q1, continuing its strong performance from Q4 2023. In addition to banks, this group includes financial services firms, insurance companies, and consumer finance companies. Major companies include Berkshire Hathaway (NYSE: BRK.A, BRK.B), JPMorgan Chase (NYSE: JPM), and Citigroup (NYSE: C).

The Industrial sector gained 10.8% for the quarter. It was the final sector to outperform the S&P 500 in Q1. Industrial sector component industries include building products, construction and engineering, electrical equipment, conglomerates, machinery, and aerospace/defense. Important constituents of the Industrials sector include Boeing (NYSE: BA), 3M (NYSE: MMM), and Honeywell (NYSE: HON).

The Laggards

Even though the following sectors lagged the S&P 500, most of them were still solidly positive.

The Materials sector was in 5th place for Q1 with a gain of 9.0%. This sector includes companies that produce chemicals, construction materials, metals and mining, and paper and forest products. Among its largest components are DowDuPont (NYSE: DWDP) and Sherwin-Williams (NYSE: SHW).

Next up was the Health Care sector, up 8.7% for the quarter. The sector includes health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries. Bellwethers in the health care sector include Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE).

Technology, which led all sectors in 2023, gained 8.4% in Q1. This sector includes technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment. Components of this ETF include Apple (NSDQ: AAPL), Microsoft (NSDQ: MSFT), and Intel (NSDQ: INTC).

Consumer Staples gained 6.8% in Q1. Making up this sector are companies involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. Component stocks include Procter & Gamble (NYSE: PG), Philip Morris International (NYSE: PM), and Coca-Cola (NYSE: KO).

Next, the Utilities sector — the worst performer of 2023 — is starting to show signs of life. Following a strong March performance, the sector turned in a Q1 gain of 4.5%. Companies that produce, generate, transmit or distribute electricity or natural gas predominantly make up the Utilities sector. Component companies include NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK), and Dominion (NYSE: D).

In second to last place — but still notching a gain of 3.1% for the quarter — was Consumer Discretionary. This sector includes industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing. It is comprised of companies such as Amazon (NSDQ: AMZN), Home Depot (NYSE: HD), and Walt Disney (NYSE: DIS).

Finally, the Real Estate Index was the only sector to record a decline in Q1. The real estate sector was down 0.7% for the quarter, primarily because high interest rates continue to weigh on the sector. This index consists primarily of real estate management and development companies and real estate investment trusts (REITs). Simon Property (NYSE: SPG) and American Tower (NYSE: AMT) are among the largest representatives of this group.

Despite defensive sectors continuing to lag behind the S&P 500, performance was positive for nearly every sector. Moreover, if interest rate cuts occur as anticipated, the market is likely to sustain momentum for the remainder of the year.

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