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Index IDEA: Cyclicals take volatility in stride while defensives lag

After a return of 22% in 2017, US large cap stocks as reflected by the Russell 1000® Index are up just 2.3% in 2018 including a 3% February decline. However, the Russell 1000® Growth Index is up 4.3% in 2018 and growth-oriented, cyclical sectors continue to lead despite the recent rough patch.

In 2018, the Consumer Discretionary (+5.8%), Technology (+5.5%) and Financial Services (+2.5%) sectors within the Russell 1000 had the highest returns among US equities, while traditionally more defensive interest rate sensitive areas like the Utilities sector (-4.1%) and Real Estate Investment Trusts subsector (-7.5%) have had negative returns.

Alec Young, managing director, global markets research, FTSE Russell:

“We find it interesting that despite increased volatility, January's cyclical industry leadership over defensive sectors continues. The reason for this is that inflation jitters and rising interest rates are taking a greater toll on higher yielding, rate sensitive, counter-cyclical industries than on less yield sensitive cyclical areas that offer greater exposure to healthy economic and earnings growth. Specifically, consumer services, technology and financials are handily outperforming the more counter-cyclical utilities and real estate industries YTD.”

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FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

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Views expressed by Alec Young of FTSE Russell are as of February 20 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

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No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets.

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