Broad-based benchmarks such as the S&P 500^® and S&P SmallCap 600^® demonstrated an upbeat response to the U.S. presidential election, rising 6% and 11%, respectively, in November 2024. The spread in U.S. size segments was more muted relative to S&P 500 sectors.  Exhibit 1 presents the November 2024 cumulative total return of the S&P 500 versus different U.S. equity size indices on the left-hand side and, on the right, compared to its 11 GICS^® sector subindices.

Following the U.S. election, sector returns showed considerable divergence. While all 11 sectors ended November in positive territory, they had very different paths, with Health Care among the laggards, ending the month with a gain of only 0.3%. In contrast, more domestically focused sectors such as Financials, Industrials and Energy were among the outperformers, just behind Consumer Discretionary. This higher dispersion created opportunities for both outperformance and underperformance for those willing to examine U.S. equity performance closely.

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The S&P 500’s GICS sectors can deviate significantly from both the performance and characteristics of the S&P 500. When examining which sectors derive most of their revenue domestically, Utilities and Information Technology (IT) are on opposite ends of the spectrum. Exhibit 2 shows that, in aggregate, companies in the S&P 500 Utilities derive nearly all of their revenues domestically at 98%, while IT is the only sector that derives over 50% of its revenue from outside the U.S.

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Traditionally, market participants have tended to have higher exposure to domestic biases and thereby sectors that align with their regional bias. Exhibit 3 highlights that the largest sector weights in various regions are to “traditional” economy sectors: in Europe, it is Industrials; in the Middle East and Africa, it is Financials; and in Latin America, it is Materials. Some of those “traditional” economy sectors (such as Financials and Industrials) tend to derive more of their revenues domestically. In contrast, the U.S. Information Technology sector derives more of its revenues internationally, with the inclusion of mega-cap tech companies like Apple and Microsoft (see Exhibit 2).

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The market capitalization of many individual U.S. sectors is also equal to the entire opportunity set of individual regional stock markets. Exhibit 4 demonstrates that the S&P 500 Information Technology sector is larger than China, while U.S. Financials is similar in size to Japan’s entire equity market.

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The size of U.S. sectors in any equity allocation decision could be as important as country exposures when looking at the sheer size of the segments. As a result, S&P 500 sectors may be a useful tool for market participants interested in exposure to sectors of varying sensitivity to the U.S. economy while also adding different geographical revenue exposures to their strategies. With the U.S. making up such a significant portion of global sectors, S&P 500 sectors could arguably help to reduce “home bias.”¹

¹ “Home bias” here is defined as market participants having a larger exposure to domestic equities than their weight in a global equity opportunity set.

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