Sector momentum for the New Year

  • Can energy pull a repeat after market-leading year?
  • Other sector laggards also rebounded in 2021
  • Consumer discretionary underperformed the most relative to 2020

Last year wasn’t just the first time since 2016 that the S&P 500 outgained the Nasdaq, it also marked a divergence from some of the notable sector-rotation patterns that played out over the past decade or so.

That may be of interest to traders, many of whom like to concentrate on areas of the market with the strongest tailwinds. The following table shows how the 11 S&P 500 sectors ranked each year from 2010 to 2021. The bottom row shows each sector’s median rank for the entire 12-year period:

Chart 1: S&P 500 sector rank by year, 2010-2021.

Source (data): Standard & Poor's (For illustrative purposes. Not a recommendation.)

Among the surprises last year:

1. Energy bucked the odds: After an unprecedented three-year run as the weakest sector (and the weakest, overall, for more than a decade), energy roared back as crude oil pushed to seven-year highs.

2. 2020 leaders stumbled (a little), 2020 laggards rebounded (a lot). Before 2021, in every year but 2014 at least one of the three-strongest sectors became one of the following year’s three-weakest. That didn’t happen last year, although 2020’s second-strongest sector (consumer discretionary) fell to seventh place in 2021, and communication services fell from third to eighth place. In contrast, 2020’s weakest and third-weakest sectors (energy and real estate) claimed the top-two spots last year, and 2020’s second-weakest sector (financials) climbed to fourth place last year.

3. Tech took a breather: After notching back-to-back years as the strongest S&P sector, tech retreated a bit in 2021, dropping to third place. (The Nasdaq 100 tech index underperformed the SPX for the first time since 2016, but just barely.) But in the past 12 years, no other sector has ever ranked higher than fourth the year after being the strongest sector, so the tech sector’s minor loss of momentum after being the No. 1 sector in three of the previous four years isn’t unusual.

Note: E*TRADE publishes its monthly sector rotation analysis on the first trading day of each month.

Market Mover Update: February gold (GCG2) started the New Year by giving back the previous two days’ worth of gains, sliding below $1,800/ounce intraday, while February WTI crude oil (CLG2) erased an early loss to rally more than 1% intraday and top $76/barrel.

Today’s numbers include (all times ET): ISM Manufacturing Index (10:00 a.m.), Job Openings and Labor Turnover Survey, JOLTS (10 a.m.), OPEC meeting.

Today’s earnings include: SMART Global Holdings (SGH).


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights

All statistics reflect S&P 500 closing price data 2010–2021. Supporting document available upon request.

What to read next...

Stocks enter 2022 near all-time highs after rebounding from a shaky start to December.

Find out why options don’t always move the way you expect them to.

This year has provided more than a few “teaching moments” for students of the markets.

Looking to expand your financial knowledge?