As the sectors turn

  • Energy strongest sector for second year in a row
  • Real estate stocks weakened most from 2021
  • Energy, consumer staples, or utilities set to soften in 2023?

This year may have been unusual for the stock market—down years, after all, are the exception to the rule—but one thing remained consistent: the shifting performance of sectors.

The following table shows how S&P 500 sector returns ranked (1 = strongest, 11 = weakest) from 2007–2021, along with 2022’s performance through December 23:

S&P 500 sector-return rank, 2007–2022. Stock sector relative strength, sector rotation.

Source (data): Standard & Poor’s. *2022 sector performance as of 12/23/22.

While energy claimed the top spot for a second year in a row—and was the only sector with a positive return—there was plenty of movement in other areas. Although the numbers could shift in the next few days, defensive sectors were among this year’s strongest performers—not surprising, given the bear market that dominated most of the year. Two of them, consumer staples and utilities, made the biggest jumps from 2021, climbing from 10th and 11th place to third and second, respectively.

One consistent pattern in recent years: With one exception (2014 to 2015), at least one of the three-strongest sectors in each year became one of the three weakest the next year. As of last Friday, real estate appeared to be 2022's most likely candidate, falling from second place in 2021 to eighth place this year. Tech also weakened notably, falling from fourth to ninth place.

A final observation to keep in mind for the coming year: In 2020, energy became the first sector (since 2007) to place last three years in a row. It has now been the strongest sector two years in a row. No sector has been the top performer for three consecutive years, and before this year, tech was the only other sector to enjoy two years at the top. Also, aside from these exceptions, the highest-returning sector always fell out of the top three the following year.

Today’s numbers include (all times ET): Mortgage applications (7 a.m.), Pending Home Sales (10 a.m.).   

Today’s earnings include: Cal-Maine Foods (CALM).       


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