{"id":40483,"date":"2023-07-25T23:06:18","date_gmt":"2023-07-26T03:06:18","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/as-tech-stocks-skyrocket-here-are-the-sp-500s-best-and-worst-sectors-for-profit-margins\/"},"modified":"2023-07-25T23:06:20","modified_gmt":"2023-07-26T03:06:20","slug":"as-tech-stocks-skyrocket-here-are-the-sp-500s-best-and-worst-sectors-for-profit-margins","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=40483","title":{"rendered":"As tech stocks skyrocket, here are the S&P 500\u2019s best and worst sectors for profit margins"},"content":{"rendered":"
\n

The U.S. stock market has seen company profit margins shrink consistently over the past two years, but they remain \u201csolid\u201d for the S&P 500 while estimates for the information-technology sector appear to be holding up relatively well, according to DataTrek Research.<\/p>\n

\u201cThe last few years have been remarkably good for this sector, and yet they continue to show the second highest margins of any S&P group\u201d in the second quarter, said Nicholas Colas, co-founder of DataTrek, in a note emailed Tuesday. \u201cWhile Tech\u2019s net margins are down modestly versus the 5-year average,\u201d he found \u201cthey are holding in well.\u201d\u00a0<\/p>\n

\n

In the chart below, Colas highlighted how S&P 500 profit margins estimated at the sector level for the second quarter are faring relative to the broad stock-market index, based on comparisons with each sector\u2019s five-year average. His note cites FactSet as the source for the chart.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

Companies this month have been reporting their second-quarter earnings results. The chart shows the tech sector\u2019s net profit margins are estimated at 22.4% for that earnings period, compared with a five-year average of 23%.\u00a0<\/p>\n

Meanwhile, the broad S&P 500 has seen its margins decline to 11.1% in the second quarter from a high of 13% in the same period two years earlier, according to the DataTrek note. The margins are now about the same as the 5-year average of 11.3 percent for the index.<\/p>\n

\u201cNo wonder the S&P 500 is still 5 percent away from its all-time high, set over 18 months ago in early January 2022,\u201d said Colas. \u201cMargins have been solid \u2013 anything over 10 percent is still great \u2013 but they certainly have not been stable.\u201d<\/p>\n

The S&P 500
\n SPX,
\n +0.28%<\/bg-quote>
\n was trading up 0.3% around midday Tuesday at about 4,566. The index closed Monday at 4,554.64, off 5% from its record close of 4,796.56 on Jan. 3, 2022, according to Dow Jones Market Data.<\/p>\n

\u201cIndustrials are showing the best margin comps versus the prior 5-year average,\u201d up 2.5 points in the second quarter, said Colas. And from a valuation standpoint, \u201cthe group remains cheaper\u201d than the 5-year average for its price-to-earnings multiple, he found, citing 19.1x vs. 19.4x.\u00a0<\/p>\n

While that track record is \u201cenough\u201d to support the sector\u2019s recent rally, \u201cwe doubt industrials can see a large secular improvement in their valuation until they get through a recession with similar levels of profitability,\u201d said Colas.<\/p>\n

The chart highlighted in the DataTrek report shows that healthcare \u201cis seeing the largest negative comparison in net margins now to its 5-year average.\u201d Healthcare margins have declined 2.8 points to 7.6% versus their five-year average of 10.4%, according to the note.<\/p>\n

\u201cIf we were in a risk-averse market environment, that might not matter too much,\u201d said Colas. \u201cIn an uptrending market, it absolutely does.\u201d<\/p>\n

The S&P 500\u2019s tech sector
\n SP500.45,
\n +1.19%<\/bg-quote>
\n is up almost 46% so far this year, while the industrials group
\n SP500.20,
\n -0.13%<\/bg-quote>
\n has rallied more 11% and healthcare
\n SP500.35,
\n -0.06%<\/bg-quote>
\n is about flat with a 0.1% dip year to date, FactSet data show, at last check. Tech is the index\u2019s best-performing sector in 2023, driving the S&P 500\u2019s year-to-date gains of around 19% based on midday trading Tuesday.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The U.S. stock market has seen company profit margins shrink consistently over the past two years, but they remain \u201csolid\u201d for the S&P 500 while estimates for the information-technology sector appear to be holding up relatively well, according to DataTrek Research. \u201cThe last few years have been remarkably good for this sector, and yet they […]<\/p>\n","protected":false},"author":1,"featured_media":40484,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-40483","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nAs tech stocks skyrocket, here are the S&P 500\u2019s best and worst sectors for profit margins | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The U.S. stock market has seen company profit margins shrink consistently 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