The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. No wonder, such worries caused an upheaval in the market this year. In Q1, Wall Street witnessed its worst performance in two years.
The downfall is showing no signs of abating. Heightened rising rate worries amid super-hawkish cues from the Fed has bummed out Wall Street this year. Overall, the S&P 500 is down 16.3% this year. The Nasdaq Composite is off 27%, the Dow Jones has lost about 14% while the Russell 2000 has skidded 21% year to date.
Most of the sectors have been hit hard this year. Still, there are a few that have been in sweet spot currently due to strong operating backdrop and high demand. Below we highlight those top-ranked sectors and their related ETFs. These ETFs can be bought on the dip.
Energy – Rank #1
The energy sector has everything that is needed right now – decent valuation, higher dividends and an upbeat operating backdrop. WTI crude ETF
United States Oil Fund LP ( USO Quick Quote USO - Free Report) is up more than 50% this year. The oil and gas rally this year has been driven by the Russia-Ukraine war (Russia is energy-rich) and rising pent-up demand as global COVID cases are ebbing.
The energy sector recorded a 240.6% earnings expansion in Q1, with 174.1% growth expected in Q2 – the highest in the S&P 500 index. The “Oracle of Omaha’ Warren Buffett too is bullish on energy giants Chevron and Occidental. Investors can thus play Zacks Rank #2 (Buy) ETF
Energy Select Sector SPDR ETF ( XLE Quick Quote XLE - Free Report) . Transportation – Rank #2
The ebbing pandemic and the economic reopening is a plus for the transportation sector. The industry has been enjoying continued strong demand with improvements in the supply chain. Delays still exist, but supply chain issues are slowly improving. This can be viewed as a ray of hope.
The first-quarter earnings picture for the transportation sector has been mixed. This is especially true as earnings of the sector are down 351.3% on 33.7% revenue growth. Although transportation is the biggest laggard in Q1 earnings growth, it is the second contributor to S&P 500 revenue growth. The earnings and revenue beat ratio of 86.7% each is impressive too. In short, the sector is showing signs of reversal for the improvement.
SPDR S&P Transportation ETF ( XTN Quick Quote XTN - Free Report) has a Zacks Rank #2. Basic Materials – Rank #4
The materials space is expected to remain strong due to growing demand for industrialization. The passage of the much-awaited $1.2-trillion infrastructure bill are pointing toward more demand for the sector.
Materials Select Sector SPDR ETF ( XLB Quick Quote XLB - Free Report) has a Zacks Rank #1. Finance – Rank #5
The current market environment can be highly beneficial to the banking sector in particular. This is because the rising rates will help boost profits for the banks. The steepening of the yield curve is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of the banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand.
The progress in coronavirus vaccine rollout presents a strong case, favoring a faster return to normalcy and economic recovery. As the economy starts operating in full swing, banks will be able to deliver an enhanced performance.
SPDR S&P Bank ETF ( KBE Quick Quote KBE - Free Report) has a Zacks Rank #2.