2021 Stock Market Results by Sector

And what to expect in 2022

It's that time of year again. The end of another year (well, close enough). Time to look back and reflect, to be better prepared for the future.

2021 was quite a year for the market. It wasn’t as emotion-twisting as 2020, but it was still very exciting.

The S&P had a great year, up almost 28%. It seemed to only ever go up — closing at a weekly all-time high on 24 occasions. There were occasional pullbacks, like September, that offered great buying opportunities, but for the most part, we saw constant growth.

For reference, 28% gains in one year is amazing. It's more than double the average annual return and, going back to 1980, only six years have offered a better return.

The other two major indexes also had strong years, especially the tech-heavy NASDAQ.

While in the long run, markets go up, it might be time to be cautious. The stellar gains from the last two years (S&P was up 15% in 2020) combined with the Fed’s three rate hikes in 2022 might make for a more turbulent investing year.

But while we’re still in 2021, let's look at how each sector performed.

Sector Gains

Below is a table showing the gains for each sector from 2021 and 2020.

Note: Prices for 2021 are from 12/23 close.

The first thing that stands out is that every sector was profitable for 2021 — and not just by a small margin, but up by double digits.

The second thing is the gains in tech. XLK was up 40% in 2022 and 33% in 2021. Not a bad two-year stretch — up almost 87% in total. XLK is mainly tech companies. Its three biggest holdings, which account for 50%, are Apple, Microsoft, and Nvidia. It will be interesting to watch how the sector does in 2022.

Consumer discretionary is a sector that at first glance surprised me. Up more than 25% both years, and almost 61% in total, it has done really well. After further investigation, it makes sense why. The two biggest holdings, which account for 40% of the ETF, are Amazon and Tesla. The latter of which has had a glorious two-year run.

Only one sector over the two years provided a negative return: energy. Over the combined period, energy was down 9%. Most of this can be attributed to 2020 and the lockdowns at the beginning of the pandemic. I remember when oil futures went negative and I was trying to find a way to trade it.

What to Expect in 2022

As mentioned earlier, tech has been on a tear the last two years. And XLK’s two biggest holdings, Apple and Microsoft, have been great the past two decades. I wouldn’t bet against tech in the future, but there's a reason for concern.

The Federal Reserve signaled raising interest rates in 2022 and 2023, which makes debt more expensive, and provides less favorable conditions for debt-heavy tech companies. The large names should do fine, but the smaller cap companies may not be as profitable.

One sector I’m interested to watch is energy. While power prices are extremely high, that may not help XLE. The two biggest holdings in XLE, at over 40% combined, are Exxon and Chevron. Obviously, oil and power prices are related, but I would think a power company instead of oil would be the better bet for 2022.

Another sector worth mentioning is health. XLV has been a great ETF to own over the past decade. It has had steady returns every year. I see no reason to believe that won’t continue, especially as our population ages and as society puts more value and spends more money on health.

2021 has been a great year for investors, offering solid returns and several surprises. I’m sure 2022 will be just as entertaining, and hopefully just as profitable (though I have my doubts).