Which S&P Sectors Are Best for Trading

At Top Gun Options we routinely trade options on SPX, an ETF that tracks the S&P 500. Trading an ETF that tracks the S&P 500 is, in a way, trading the US economy. Standard and Poor’s offers traders more than the S&P 500. It has eleven indices that track sectors of the economy as well. The largest sector by market cap is information technology. Which S&P sectors are best for trading? Are there advantages of one over another or over the S&P 500 itself? As the stock market slides farther and farther down, performance in the various sectors can be significantly different.

What S&P Sectors Are There?

There are the eleven S&P sectors ranked according to market capitalization.

Information TechnologyHealth CareFinancials
Consumer DiscretionaryCommunication ServicesIndustrials
Consumer StaplesEnergyUtilities
Real EstateMaterials

Since the market began to slide at the start of 2022 not all of the sectors have performed the same. Information technology, which includes the tech darlings that have propelled the market for years, has fallen more than the S&P 500. While the S&P 500 is down 14%, information technology is down 20% Meanwhile, Consumer Staples was up 3% in April until it slide to minus 5% by June. While the S&P 500 is a good measure of the US economy and responds to “macro” factors, the sectors have their own unique drivers.

Why Trade Any of the S&P Sectors?

Year to date the S&P is down 14%, the information technology sector is down 20%, consumer staples is down 5%, and the energy sector is us 55%! It you like trading positive trends, this was the sector to be in for the first half of 2022. Energy is beating the rest of the market because the cost of energy is a big part of inflation along with food and housing. Although we expect the war in Ukraine to eventually get resolved and the price of oil to go down, it will likely keep going up until Ukraine gives up a chunk of their country in a deal or Putin decides that his war is not only leading to the ruin of his country but also the demise of his legacy. There will come a point where trading an upgoing trend will no longer be the best strategy. Then, as now, will not be a good time to be trading alone. Look into joining one of the trading squadrons at Top Gun Options where we potentially print money no matter which way the market is going.

By picking and choosing among the various S&P sectors you can often find trends that are tradable but which are diluted in the larger S&P 500 where information technology, health care, and consumer discretionary are dominant. Investors who focus on these sectors try to rotate out of sectors like information technology and into consumer staples when a recession is beginning. Today when oil and natural gas prices are up and likely to stay there, energy is clearly a good choice. Because options traders can make money no matter which way the market is headed one may wish to look at sector volatility when choosing a sector to follow and trade.

In all cases, profits in options trading come from paying attention to factors like politics, international events like the war in Ukraine and lockdowns in China, and the rise of commodity-related protectionism. Profits come from learning how to trade options and always use strategies that hedge your risk. And profit comes from working with a dedicated squadron of traders like the folks at Top Gun Options where we, again, are printing money as the overall market falls.