In a year when soaring inflation and sinking growth rocked corporate boardrooms and Wall Street trading floors, some nooks of the stock market gave investors shelter to hide out.
What worked in most of 2022 essentially was a long-inflation trade: A bet that the dollar and Treasury yields would rise on the Federal Reserve's most aggressive policy tightening in four decades, while the biggest winners of a low-rate environment — tech companies — would fall.
Below are the corners of the stock market that did best in 2022. In some cases, the gains came as a welcome respite after years of meager returns that frustrated investors, while in others the best hope was to simply lose less money than the broader market.
Re-Energized
Energy stocks are on a tear in 2022 as every other S&P 500 sector is nursing losses. The S&P 500 Energy Index returned 63% including dividends, outperforming the broader benchmark for a second straight year.
This is a reversal of recent trends, however, considering that in the 10 years through 2020 the group fell at a 2.7% annual pace versus a 14% annual return for the S&P 500.
A combination of factors has worked in the group's favor. First, Russia's invasion of Ukraine tightened supply and sent energy markets into spasms. Then, China's move to abandon its Covid Zero policy and revive consumption further propelled the rebound. And yet the shares are still relatively cheap, with energy stocks in the S&P 500 selling for 9.4 times estimated earnings, less than every other group in the benchmark.
"Energy stocks may continue to go up over the winter heating season," said Kim Forrest, founder and chief investment officer at Bokeh Capital Partners. "Longer-term, supply continues to be limited and demand is going up, which will likely continue to work in favor of energy firms as a whole."
Analysts covering energy companies in the S&P 500 say the rally isn't over year. Buy recommendations for the group make up 61% of analysts' projections, compared with 55% for the broad equities benchmark, data compiled by Bloomberg show.
Still, JPMorgan & Chase & Co.'s chief global markets strategist Marko Kolanovic recently warned that the rally in oil and gas stocks is due for a pause. And the shares have already come off their highs on mounting concerns that a recession is in the offing next year, which would curb consumption.
