Wednesday's Market Minute: Sector Breakdown for 2021

Stocks have caught a bid into the end of the year, which is not surprising as history shows they typically rally between Christmas and the New Year. The major indices have shown above-average gains in 2021 led by the Nasdaq-100, which is up 28%, and the S&P 500, which is higher by over 27%. The S&P 500-specific sectors have covered a wide array of gains this past year. Which sectors will outperform in 2022? While many believe that energy will continue to rise, with oil prices jumping over 55% this past year, has the energy sector, with its rally of nearly 50% in 2021, run its course?

The Real Estate sector is up 40% in 2021 but looks stretched on a technical basis. Information Technology continues to outperform, with the sector up nearly 35% this past year. While software and fintech have pulled back from highs, what impact will a rising rate environment and a focus on valuations have on the sector? The S&P 500 Financials Sector has rallied 33% in 2021 but most of those gains took place in the first quarter. Will higher interest rates next year continue to propel banking stocks? Healthcare, Materials, Discretionary, and Communication Services have all rallied more than 20% in 2021 but have had pull-backs this past quarter.

On the bottom of the gains this past year are Utilities, Staples, and Industrials, which have still had solid double-digit percentage gains. The Nasdaq-100 has outperformed the overall market over the last four years led by a rise in the mega-tech names. But now the S&P 500 is also led by tech. The top seven names in the S&P 500 make up nearly 27% of the index. Apple, Microsoft, Alphabet, Amazon, and Tesla lead the top five and throw in Meta FB and Nvidia NVDA to round out a powerful line-up. If you are betting against a market rally for the S&P 500 in 2022, then you most likely believe that mega-tech will underperform. That’s been a losing proposition recently, and many expect the names will continue to do well. It may be a year for stock-picking in 2022, but specific sectors along with the S&P 500 and Nasdaq-100 have provided a banner year for many investors.

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