While the small-cap S&P 600 led the charge among broad-based indexes in the first half of 2013, Sector Leaders easily trounced the market as IBD's best-performing stock screen.
Sector Leaders — which are highlighted in the Smart Tables for their superior fundamentals (today on Page B7) — advanced 37% while the S&P 600 climbed 16%. The blue chip Dow Jones industrial average rose 14% in the first half of 2013 while the Nasdaq and the S&P 500 each increased 13%.
Other IBD screens that outperformed the market were the Nasdaq Stock Spotlight (Page B9), up 24%, and the Big Cap 20 (published Tuesdays), up 23%.
The IBD 50 kept pace with the broad market, rising 15%.
Sector Leaders must pass IBD's most stringent screening criteria, especially when it comes to fundamentals. Right now only 12 stocks make the grade, up from three in March.
Having such high standards makes all the difference in a challenging stock-picker's market.
For the general indexes, holding the pole position at the midyear mark hasn't always been indicative of the full year's performance. And the fact that the major indexes were bunched up in the 13% to 16% range lessens the importance of being No. 1.
Yet some market commentators trumpeted 2013's first-half performance as "the best since 1998." It takes some pretty selective reasoning, however, to get to that conclusion. The S&P 500 did get off to its quickest start since 1998's first half. But that index has rarely led the pack in the strong years.
Three times since 1998 the Nasdaq's first-half performances were better than this year's .
And as the accompanying chart shows, the market's leading index has delivered bigger first-half gains than this year's performance 18 times in the past 50 years.
While throwing around words like "best" for 2013's start may be overheated rhetoric, history shows that a strong first act is usually followed by a positive second act.
In those 18 years, 61% of the time indexes also had a positive performance in the second half. Yet most of the time, the gains slowed.
The second-half market gains grew stronger in only three of the 18 years.
So if this year delivers like most years have, the gains in the second half will be smaller than in the first half.
Breakouts in the first half were part blessing and part curse. The first half featured many leaders — stocks with a Composite Rating of 90 or better — crossing buy points. But many showed erratic action.
Some triggered the 8% sell rule before regrouping and breaking out again.
Plastics maker PolyOne (POL) broke out Jan. 2 and gained as much as 27% from a 21.10 before correcting. However, the ride up was choppy and made for a difficult hold.
Nationstar Mortgage (NSM) cleared a 32.10 buy point Jan. 2 and peaked in May with a 46% gain. Here again, choppy action made Nationstar a tough stock to ride.
Custom parts maker Proto Labs (PRLB) was an on-again, off-again story. The stock popped over a 40.60 buy point Jan. 16 and faded below the buy point twice before gapping up 26% on Feb. 13. All of the gains were given back in the next couple of weeks as the stock consolidated. The stock provided an early entry in April that failed and another entry June 18 that appears to be working.
RV and bus maker Thor Industries (THO) broke out Jan. 24 but tripped the 8% sell rule in early February. The stock regrouped and broke out again June 7. The latest appears to be working.
Homebuilder D.R. Horton (DHI) broke out Jan. 29 but fell as much as 6.7% below the buy point on Feb. 25. More choppy action followed.
Michael Kors (KORS), the apparel maker, broke out in February and May and triggered the 8% sell rule both times.
March was a nasty month for breakouts. The number of stocks breaking out and eventually triggering the 8% sell rule exceeded those that broke out and worked.
Social networking platform LinkedIn (LNKD) was a star in the first half. The stock broke out on Jan. 10, passing a 117.42 buy point. The stock advanced 73% by early May. The stock was not hard to hold.
Another leader shone in a different way — steady rather than dazzling action. Visa (V) has been riding above its 10-week line for the past 12 months. Occasionally, the stock has come back to the buy area, but never much more than that. The stock began the year with a bounce off the 10-week area and is up 23% for the year.
The first half of 2013 saw a rotation in leadership, as measured by top industry groups. Only two industry groups that were in the top 20 of 197 groups at year-end remained in the top 20 as of Monday's IBD. They are Energy-Solar and Media-Radio/TV.
Fading from the top 20 were five building-related groups. Rising into the elite ranks were four retail-related groups.