Top of the markets: energy and financials the winners in February

The performance gap between the S&P 500 sectors was at its largest since March 2020. 

At the end of February, markets around the world started to wobble due to rising bond yields and inflation fears. However, despite this downturn, most markets finished the month higher.

The S&P 500 finished at 3,811 points, up by 2.76% on the month. The rally in mid- and small-cap US stocks also continued, with the S&P MidCap 400 up by 6.8% and the S&P SmallCap 600 up by 7.65%. The Dow Jones Industrial Average index also had a relatively decent month, up by 3.43%.  

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In terms of sectors, energy was the clear winner in February, with index up by 22.66%. February saw commodity prices, including crude oil, continuing to rise on the back of an expected return to economic growth this year. Financials also performed well with the S&P Financial Sector Index clocking double-digit gains, rising by 11.49%.

According to Tim Edwards, managing director of index investment strategy at S&P Dow Jones Indices, the strong performance of financials was the result of the rise in long-term bond yields, steepening the yield curve, which is broadly good for bank profitability.

The performance gap between S&P 500 sectors was at its largest since March 2020. The worst-performing sector was utilities, which lost 6.12%. The difference between the performance of this sector and the best performing, which was energy, was 29%.

In terms of factors, so-called high beta stocks were the best performing, with the index gaining over 18%. The S&P 500 High Beta Index measures S&P 500 stocks that are most sensitive to changes in market returns. Meanwhile, among the worst-performing stocks were low volatility. The S&P 500 Low Volatility Index, which is designed to measure the performance of the 100 least-volatile stocks within the S&P 500, lost 1.1%.

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The S&P 500 Equal Weight Index continued to outperform its market-capitalisation equivalent, returning over 6%.

Looking to Europe, both the S&P Europe 350 and the S&P United Kingdom finished February a few percentage points higher. The Europe index gained 2.73% and the UK index was up 1.79%.

Sector performance followed the same pattern as the US, albeit with smaller gains. The S&P 350 Energy Index gained 10.21%, while financials gained over 11%. Utilities were the weakest, with a loss of over 5%.