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The S&P's Worst Sectors in 2013

Dan Caplinger
January 5, 2014

The S&P 500 (INDEX: ^GSPC) jumped more than 32% in 2013, including dividends. But just because the overall index rose doesn't mean that every stock within the index did as well. In fact, several entire sectors of the S&P 500 fell well behind the index's overall gains, although all of them managed to avoid outright losses. Let's look at the worst S&P sectors last year to find out why investors in utility and telecom stocks dramatically underperformed the S&P 500's results in 2013.

EXC Total Return Price Chart

Utility and Telecom Stocks Return Price data by YCharts

When you look at the returns of both of these sectors in 2013, you'll find eerily similar numbers. Utility stocks in the S&P 500 rose 13% this year, while telecom stocks gained just 11% in 2013. Yet even though these industries have a lot of differences, the same general concerns weighed on both of their respective results this year, and they largely boil down to one overarching event: the Federal Reserve's decision to start pulling back on its bond-buying activity through its quantitative easing policy.

In particular, you can see that problems began for many utility and telecom stocks in May and June and persisted in many cases throughout the year. Utilities Exelon (NYSE: EXC) and Southern (NYSE: SO) struggled to avoid big losses for the year, while telecom giants AT&T (NYSE: T) and Verizon (NYSE: VZ) did a better job of producing at least modest gains for the year. The May/June period was when the Fed started discussing the possibility of reducing its QE activity, and even though it took until the end of the year for the Fed to actually pull the trigger on a policy shift, the fear was enough to send long-term interest rates much higher.

Higher interest rates are of particular concern for utilities and telecoms because of the massive amounts of capital investment necessary for their respective operations. Building wireless networks and utility grids is enormously expensive, and most companies in the two sectors keep large debt loads compared to stocks