The second quarter of 2021 closed last week, so it’s time to take a look at quarterly sector performance. For reference, the S&P 500 returned 8.2% for the second quarter. The second quarter continued a broad-based rally, with every sector except utilities turning in a positive return. Year-to-date (YTD), however, all S&P 500 sectors are in positive territory.

Let’s review the Q2 2021 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. The 11 Select Sector SPDRs represent the S&P 500 as a whole.

The Real Estate Index had performed relatively well in Q1, but it rose to the top of the heap in Q2, likely because real estate is considered to be a good inflation hedge. This index consists primarily of real estate management and development companies and real estate investment trusts (REITs). The sector was down in 2020 because of the pandemic, but it has been one of the top-performing sectors in 2021. The index returned 13.0% in Q2, and is up 23.3% YTD. Simon Property (NYSE: SPG) and American Tower (NYSE: AMT) are among the largest representatives of this group.

Technology soared in 2020, lagged in Q1 2021, but bounced back in Q2 with a return of 11.4%. 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).

The energy sector was the top performer in the first half, but it slipped to third place in Q2 with a return of 10.9% after leading all sectors for two straight quarters. The Energy Select Sector SPDR Fund (XLE) is up 45.1% YTD. Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), EOG Resources (NYSE: EOG), and Schlumberger (NYSE: SLB) are major components of this ETF.

Communication Services gained 10.6% for the quarter. This sector includes diversified telecommunication services, wireless telecommunication services, media, entertainment, and interactive media & services. Components include Facebook (NSDQ: FB), Alphabet (NSDQ: GOOGL), and AT&T (NYSE: T).

The Health Care sector underperformed in 2020 and during the first quarter of this year, but bounced back to beat the S&P 500 in Q2 with a return of 8.3%. The Health Care 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).

The Financial sector was one of the hardest-hit during the pandemic, but it has now reeled off three strong quarters in a row. It tied the S&P 500’s gain in Q2 with a return of 8.2%, but over the past year it is the top-performing sector with a return of 61.6%. 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 (NYSE: JPM), and Citigroup (NYSE: C).

The Consumer Discretionary sector has had two underperforming quarters in a row, returning 6.4% in Q2. 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).

The Materials sector was a little further back with a return of 4.9%. However, the sector did slightly outperform the S&P 500 in the first half. 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).

The Industrials sector gained 4.3% in Q2. Component industries include aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, and machinery. Important constituents of this sector include Boeing (NYSE: BA), 3M (NYSE: MMM), and Honeywell (NYSE: HON).

The Consumer Staples sector was the worst performer in Q1, and wasn’t much better in Q2 with a return of 3.1%. 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).

In last place was the Utilities sector, which declined 0.5% for the quarter. This sector is also the worst performing sector for the first half of 2021 with a return of 2.4%. The main headwinds for the sector are inflation fears and rising bond rates. 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 summary, the market rally that began a year ago continues to advance. Inflation resistant sectors have performed especially well, and will likely continue to be favored in the second half of 2021.

Editor’s Note: The red-hot NASDAQ currently hovers at a record high. There’s a slew of much-hyped “story stocks” in the tech sector that trade at nosebleed levels and they’re poised for a tumble.

Our colleague Jim Pearce, chief investment strategist of Mayhem Trader, is convinced that we’re witnessing another tech stock bubble. As Jim puts it: “It’s starting to look like 2000 all over again.”

Jim is an expert at making money from market excesses. After pinpointing the most vulnerable stocks in the tech sector, he devised a simple way to profitably leverage their imminent decline. To learn about Jim’s next “mayhem” trade, click here.