Top Performing S&P 500 Sectors 2022

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I want to preface this post by saying that all of the data and visualizations presented herein were created by Yardeni Research. I am simply reposting them and adding my own explanation here.

This post will look at the performance of the sectors that make up the S&P 500 broadly, year-to-date. I will then break down the top six individual sector’s performance in more detail. In my next post, here, I will break down the five worst performing sectors of 2022.

Starting with a high-level chart of S&P 500 Sectors Performance:

S&P 500 Sectors Performance by Yardeni Research

On a year-to-date basis, Energy has outperformed every other sector by far. As of 11/22/2022, Energy stocks increased on average this year by +68.3%. The next best performing sectors were Consumer Staples (-1.6%), Utilities (-3.0%), Health Care (-3.9%), Industrials (-5.2%), and Financials (-8.5%). This is not so surprising considering the current market conditions that have driven the investment narrative: inflation, rising interest rates, geopolitical turmoil and the resulting energy and commodity crisis.

The worst performing sectors of 2022 have been Communication Services (-37.5%), Consumer Discretionary (-32.2%), Real Estate (-25.8%), Information Technology (-23.9%), and Materials (-9.4%). I was honestly surprised to see Materials on this list because I thought Materials would have faired better this year as inflation and supply chain issues have driven up costs over the past few years. That said, after taking a look at Truflation’s dashboard I noticed that inflation peaked in the United States as of March-April of 2022. This peak in inflation seems to be correlated to the peak in these sectors.

S&P 500 Energy Sector Breakdown

S&P 500 Energy Sector Performance by Yardeni Research

As can be seen in the chart above, it’s been a great year for Energy investors (+68.3%). By Yarendi Research’s breakdown, Energy seems to focus on Oil and Gas segments like Equipment & Services, Exploration & Production, Storage & Transportation, Refining & Marketing, and Integrated services.

Interesting here is that Storage and Transportation investments have underperformed in this category, increasing by only +20.5% this year. Every other category grew by over +60%.

Oil and Gas have been in the spotlight this year due to the ongoing war between Ukraine and Russia which has put extreme pressure on global energy trade. In 2021, Russia natural gas accounted for 45% of imports and almost 40% of European Union gas demand. Sour relations with Russia and national security concerns has led to increased international investment in this sector.

S&P 500 Consumer Staples Sector Breakdown

S&P 500 Consumer Staples Sector Performance by Yardeni Research

Consumer Staples (-1.6%) is currently the second best performing sectors of 2022. As recession hits and economies decline, investors seek asset classes that endure market turbulence. One way is by investing in everyday essentials like Household Products, OTC Drugs, Supermarkets, Personal Products, Beverages, Alcohol, and Tobacco.

Here’s how the Consumer Staples sector breaks down in terms of its constituent segments’ performance from best to worst: Brewers (+18.2%), Soft Drinks (+5.9%), Tobacco (-0.3%), Hypermarkets and Supercenters (-1.3%), Household Products (-11.1%), Drug Retail (-19.9%), and Personal Products (-40%). Investors seem to prefer the vice products over average consumer goods, which is interesting to see.

S&P 500 Utilities Sector Breakdown

S&P 500 Utilities Sector Performance by Yardeni Research

Utilities (-3.0%) is the third highest sector, year-to-date. We will always need energy and investors flock to Utilities for a steady and reliable stream of income, especially when the market is on edge.

Within the Utilities sector, the Independent Power Producers & Energy Traders segment performed the best, increasing by +15.6% so far in 2022. Next was Electrical Utilities (-2.9%) and Multi-Utilities (-3.0%). Water Utilities performed the worst (-21.5%), which I found to be surprising. Although water is increasingly a scare asset, investment dollars seem to prefer Utilities with higher paying dividends.

S&P 500 Health Care Sector Breakdown

S&P 500 Health Care Sector Performance by Yardeni Research

Health Care (-3.9%) has performed very well over the past few years, which it should have during a pandemic, and is currently the fourth best performing sector within the S&P 500 in 2022.

The top performing segment of the Health Care sector this year is Biotechnology (+16.2%). Managed Health Care (+5.4%), Pharmaceuticals (+5.0%), and Health Care Services (+4.1%) are also segments that have grown. The Health Care Equipment segment has been a major loser this year, decreasing by (-22.0%) and pulling the rest of the sector down with it.

S&P 500 Industrials Sector Breakdown

S&P 500 Industrials Sector Performance by Yardeni Research

Industrials (-5.2%) weigh in at fifth best performing segment of the S&P 500 this year. This sector is typically a strong one to invest in during market downturns due to the nature of how essential the sector is to society in terms of productivity and output of real goods and services. In current times, defenses are a requirement due to geopolitical risk and war.

Construction Machinery & Heavy Trucks (+15.1%) and Aerospace & Defense (+12.3%) lead this sector and are the only two segments measured positive year to date. This is not surprising due to the needed investment in infrastructure and housing, and the ongoing war between Ukraine and Russia. Next on this list is Industrial Conglomerates (-6.8%), Electrical Components & Equipment (-12.3%), and Industrial Machinery (-13.3%), all which have declined.

S&P 500 Financials Sector Breakdown

S&P 500 Financials Sector Performance by Yardeni Research

Financials (-8.5%) is the next sector in terms of performance within the S&P 500 and has just recently started to gain value since a local bottom in October. Banks have been at the whim of federal policy and interest rate hikes this year. As interest rates rise, banks should be able to capitalize so long as there is demand in the market for loans.

Reinsurance (+19.5%) has been the best performing segment within the Financials sector this year. Along with Reinsurance, Insurance Brokers (+1.0%) is the only other segment that is positive this year. Troubled times calls for insurance, I guess? Next on the list is Investment Banking & Brokerage (-2.6%), Diversified Banks (-13.7%), Consumer Finance (-14.2%), Asset Management & Custody Banks (-19.2%), Financial Exchanges & Data (-21.5%), and Regional Banks (-22.8%).

I will continue breaking down the worst performing segments of the S&P sector during 2022 in my next post, here.

Understanding sector performance is critical when developing a personal portfolio or fund of investments. Step back and look at the bigger picture to understand if you’re headed with the tides of the market or against them. I hope this has been as informative for you as it’s been for me.

Check out my personal portfolio on M1Finance here and learn how you can use their automated investing tools to create one for yourself here.

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Information, not investment advice. Your risk and decisions, not mine :)

by Michael Cascio