The focus of many investors and analysts is on stocks, the building blocks of any investment portfolio. To understand the factors that drive the returns on individual stocks, many analysts turn to traditional fundamental analysis, using StarMine models to evaluate an individual company’s earnings outlook, credit risk or other factors. In this report, however, we are taking a broader approach in order to get a different perspective. By aggregating the various StarMine model scores of individual companies into their respective economic sectors, our goal is to develop a bottom-up view of those sectors and to understand the three elements that play the greatest role in shaping stock prices: the financial performance and other characteristics of the companies themselves; analysts’ forecasts (as submitted to Thomson Reuters) and the actions of investors, reflected in their influence on stock prices. What these inputs have to say about the sectors of the S&P 500 (and in some cases, individual stocks) is reflected in the data displayed and discussed below.
We used a wide variety of fundamental and quantitative metrics that are incorporated into StarMine’s 11 quantitative models and the 30-plus component scores within those models in order to evaluate the rankings of each S&P 500 sector. Some of these StarMine models focus on earnings quality, or emphasize monitoring trends (tracking analysts’ earnings revisions or price momentum), while others are designed to track mean reversion, such as the StarMine Intrinsic Valuation and Relative Valuation models. The StarMine family of models also tracks such factors as buy-side demand, short interest and various aspects of credit default risk.