Services And Healthcare Lead Sector Declines As Defensive Stocks Lag

Looking at the sectors faring worst as of midday Friday, shares of Services companies are underperforming other sectors, showing a 1.0% loss. Within the sector, Costco Wholesale Corp (NASDAQ:COST) and Sysco Corp (NYSE:SYY) are two large stocks that are lagging, showing a loss of 3.3% and 3.2%, respectively. Services shares often trade as a proxy for U.S. consumer demand, so underperformance in the group can signal a more cautious tone around spending-sensitive areas of the market.

Among the largest ETFs, one ETF closely following services stocks is the iShares U.S. Consumer Services ETF (NYSE:IYC), which is down 0.6% on the day, and down 3.08% year-to-date. The fund tracks an index of U.S. consumer services companies including retailers, media, hotels, restaurants, and other service-oriented businesses, providing diversified exposure to the segment. Costco Wholesale Corp, meanwhile, is up 15.87% year-to-date, and Sysco Corp is roughly flat on a year-to-date basis. COST makes up approximately 4.4% of the underlying holdings of IYC, so weakness in Costco shares can have a noticeable impact on the ETF's short-term performance.

Despite today's move lower, Costco has been one of the more resilient large-cap consumer names in 2024, supported by steady membership renewal rates and consistent same-store sales growth. Sysco, the largest food-service distributor in North America, tends to be more sensitive to restaurant and hospitality trends, and its flat year-to-date performance reflects a more mixed backdrop for away-from-home food demand. For investors, the divergence between today's pullback and the stronger year-to-date performance for some individual names underscores the importance of looking beyond a single trading session when assessing sector health.

The next worst performing sector is the Healthcare sector, also showing a 1.0% loss. Among large Healthcare stocks, Labcorp Holdings Inc (NYSE:LH) and Idexx Laboratories, Inc. (NASDAQ:IDXX) are the most notable, showing a loss of 4.5% and 3.8%, respectively. One ETF closely tracking Healthcare stocks is the Health Care Select Sector SPDR ETF (XLV), which is down 1.2% in midday trading, and down 4.35% on a year-to-date basis. Labcorp Holdings Inc, meanwhile, is up 4.30% year-to-date, and Idexx Laboratories, Inc. is down 16.86% year-to-date. Combined, LH and IDXX make up approximately 1.3% of the underlying holdings of XLV.

Healthcare is typically considered a defensive area of the equity market, with earnings that are less tied to the economic cycle. Underperformance in the group, particularly when combined with weakness in Services, can indicate a broader risk-off mood in which investors rotate toward cash or shorter-duration fixed income rather than simply shifting from cyclical to defensive equities. XLV, which tracks large-cap U.S. healthcare names across pharmaceuticals, biotechnology, medical devices, and healthcare services, is often used as a benchmark for the sector's performance.

Labcorp, a leading provider of diagnostic testing and contract research services, has modestly positive year-to-date performance, supported by steady demand for core testing and cost-efficiency initiatives. Idexx, by contrast, is more growth-oriented, with a focus on veterinary diagnostics and software for companion-animal health. Its double-digit year-to-date decline follows a strong multi-year run and reflects investor sensitivity to high valuation multiples and any sign of slowing growth in pet-related spending.

For portfolio managers, the combination of Services and Healthcare underperformance means that two sectors often viewed as relatively stable anchors in diversified portfolios are not providing much downside protection on today's tape. That dynamic may contribute to higher overall index volatility when selling pressure broadens out across both cyclical and defensive segments.

Comparing these stocks and ETFs on a trailing twelve month basis, below is a relative stock price performance chart, with each of the symbols shown in a different color as labeled in the legend at the bottom. Such relative performance views can help investors identify which names have been persistent leaders or laggards through different phases of the market, rather than focusing solely on one-day moves:

Here's a snapshot of how the S&P 500 components within the various sectors are faring in afternoon trading on Friday. As you can see, one sector is up on the day, while eight sectors are down. Materials is the only sector in positive territory, suggesting that today's session is characterized by relatively narrow leadership and broad-based selling elsewhere in the market.

Sector	% Change
Materials	+0.7%
Utilities	-0.2%
Energy	-0.4%
Consumer Products	-0.6%
Industrial	-0.6%
Financial	-0.8%
Technology & Communications	-0.8%
Services	-1.0%
Healthcare	-1.0%

From an asset-allocation standpoint, days when only one sector is in the green often reinforce the benefits of diversification across asset classes, not just across equity sectors. Investors tracking broad benchmarks may also monitor how sustained underperformance in Services and Healthcare affects overall index factor exposures, including tilts toward growth versus value, cyclicals versus defensives, and interest-rate sensitivity.

See whether the same theme is showing up elsewhere by reviewing Top 25 Broker Analyst Picks of the S&P 500.

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