Despite rising energy stocks, utilities and real estate sectors drag down the S&P 500 in the Q3.

The S&P 500 was driven down in the third quarter by sectors hit by inflation and increasing interest rates, such as utilities, real estate, and consumer staples. Growth in the energy industry, bolstered by growth in communication services, was insufficient to compensate for other losses.

The S&P 500 dipped 3.65% in the third quarter of 2023, but was still up more than 12% year to far.

Utilities

The utilities sector had the second-largest loss in the index, falling 10.09% during the quarter.

The utility sector’s slide was led by The AES Corporation (AES) stock, which fell 26.68%, and NextEra Energy (NEE) stock, which fell 22.79%.

In general, the utilities industry is seen as a secure investment, although historically, inflation and high interest rates have had a negative impact on the sector. Utility firms often carry more debt to fund capital expenditures, thus rising interest rates have a negative influence on their equities. Higher interest rates make bonds more appealing, and utility stocks may lose investors as a result of this trend.

Real Estate

Real estate was the worst-performing sector of the S&P 500 in the third quarter, losing 9.66% in three months.

Broad economic issues such as rising interest rates damaged the industry overall, while Crown Castle (CCI) and Extra Space Storage (EXR) experienced the most losses, plummeting 19.23% and 18.32%, respectively.

Consumers faced high mortgage rates as the Federal Reserve continued to raise interest rates to battle inflation. In September, home affordability fell to its lowest level in 40 years. Back-to-office proposals, on the other hand, have not gained traction sufficiently to stimulate demand for office space, putting a burden on commercial real estate.

Consumer Goods

In the third quarter, the consumer staples sector decreased 6.61%. Discount shop stocks, Dollar General (DG) and Dollar Tree (DLTR), led the decline, falling 37.68% and 25.82%, respectively.

Consumer staples stocks are normally considered defensive since, in principle, they provide customers with things that they require. This time, though, consumer staples stocks have been harmed by a number of causes.

Increased inflation has an impact on enterprises that utilize commodities to manufacture items and must be wary of passing on those costs to customers in the form of increased pricing. Fidelity analysts believe that, despite a healthy job market and good consumer spending so far, increased oil prices—a crucial element in products as well as packaging—could harm businesses.

Energy

Energy stocks grew the most of any sector in the S&P 500 during the third quarter, up 11.33%. This tremendous expansion coincides with an increase in the price of oil, which is being driven by historically low supply.

In the third quarter of 2023, energy stocks were among the top six best-performing S&P 500 companies.

Over the last three months, the top-performing index stocks were in the oil sector, with Marathon Petroleum (MPC) rising 29.79% and Phillips 66 (PSX) up 25.97%.

Financial Services

Despite being the third best-performing industry throughout the quarter, financial services did not increase. During the three-month period, the sector lost 1.6%.

While the banking sector as a whole failed to grow, individual equities within the industry saw some positive movement. Zions Bancorp (ZION) was the best-performing stock in the S&P 500 this quarter, rising 29.9%.

Communication Services

With 2.84% growth, communication services were the second-best-performing sector of the quarter, after only energy.

This expansion was aided by firms such as Charter Communications (CHTR), which increased by 19.72%, and Activision Blizzard (ATVI), which increased by 11.07%.

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