Gap widens between market’s winners, losers

Bloomberg

To the naked eye, it was just another up week for stocks. The S&P 500 Index rose 7 points, the eighth time in a row it’s been up. Beneath the surface a barrage of headlines on everything from earnings to the Federal Reserve and taxes were drawing brighter lines between winners and losers.
While benchmarks muddled along and broader volatility gauges plumbed to record lows, turbulence was rising within individual industries. Homebuilders and companies with shaky finances dropped as the House tax bill sought a limit on mortgage and interest expense deductions. Meanwhile, Apple joined other tech megacaps in beating estimates, solidifying the industry’s market leadership.
“You have seen homebuilders get whacked and the big tech companies really fire ahead,” said Jeff Lancaster, a principal of San Francisco-based Bingham, Osborn & Scarborough, which oversees more than $4 billion. “Investors remain attentive to the shift in
the regulatory environment and the tax environment.”
Surface calm masked wide divergences in returns during a quarter in which investors have bought companies with the best earnings potential while staying away from those that may be hurt by competition or new policies.
The Fed’s plan to raise interest rates has bolstered financial shares and at the same time made high-dividend stocks such as utilities and phone companies less attractive.
Another example: Amazon’s stock is rising along with its online presence while retailers such as JC Penney Co nurse mounting losses. Despite concern over megacap valuations, tech shares have jumped the most this quarter among 11 main groups as the industry enjoyed the broadest profit beats.
While the S&P 500 climbed 2.7 percent since September, the gap between the best and worst performing industry widened to 19 percentage points. It’s the first time since the 2008 financial crisis that such a small move in the index was accompanied by such big industry divergence.