Wall Street has been downbeat in the fourth quarter with Santa Claus Rally not seen this year. Investors have been extremely worried about recession fears now, probably due to the relentless market forecasts. Inflation fear seems not to be that acute now as the price index has started showing a downtrend.

Goldman Sachs, Bank of America and JPMorgan predict a U.S. recession in 2023. "Inflation is eroding everything I just said and that a trillion and a half dollars will run out sometime midyear next year," I.P. Morgan CEO Dimon said, as quoted on investing.com.

As a result, the S&P 500 is off 0.5% in the past three months and the Nasdaq has lost about 6.5%. However, the Dow Jones has gained about 6.8% and the Russell 2000 has dropped 1.9% in the last three months (read: No Santa Rally in 2022? 3 Top-Ranked Safe Sector ETFs to Buy).

As expected, the Federal Reserve boosted its benchmark interest rate by 50 basis points in December. The policymakers also forecast that their key short-term rate will reach a range of 5% to 5.25% by the end of 2023, before being slashed to 4.1% in 2024. This suggests that the Fed is prepared to hike its benchmark rate by additional three-quarters of a point and then stay put till the end of 2023 (read: Top-Ranked ETFs to Play Fed's Seventh Rate Hike of 2022).

Against this backdrop, below, we highlight a few top-ranked sector ETFs that gained handsomely in the past three months and have room for further growth.

Energy

SPDR S&P Oil & Gas Equipment & Services ETF (XES Quick QuoteXES - Free Report) – Up 18.7%; Zacks Rank #2 (Buy)

Vanguard Energy ETF (VDE Quick QuoteVDE - Free Report) – Up 7.3%; Zacks Rank #1 (Strong Buy)

Energy stocks have room to go higher, even after a successful run this year, says one strategist, as quoted on Yahoo Finance. "They're still cheap if you look at it on most metrics,” Tortoise portfolio manager Rob Thummel told Yahoo Finance. He also says the biggest driver for energy stocks going forward is the yield they offer investors.

In China, more cities are easing COVID-19-related restrictions, prompting expectations of increased demand in the world's top oil importer. Russian oil exports could decline by two million barrels per day by year-end 2023, The Fitch Group said, as quoted on CNBC. This, in turn, may boost oil prices higher.

Biotech

First Trust NYSE Arca Biotechnology ETF (FBT Quick QuoteFBT - Free Report) – Up 12.2%; Zacks Rank #2

iShares Biotechnology ETF (IBB Quick QuoteIBB - Free Report) – Up 8.4%; Zacks Rank #1

With the pandemic being largely managed, thanks to the rollout of vaccines in record time, the biotech sector’s focus has shifted to new drug approvals, label expansion of existing drugs and acquisitions. Meanwhile, the legal marijuana market has ballooned lately, resulting in a multibillion-dollar business. Plus, the sector’s non-cyclical nature makes it important even amid global growth slowdown.

Industrials

Industrial Select Sector SPDR ETF (XLI Quick QuoteXLI - Free Report) – Up 10.4%; Zacks Rank #2

iShares U.S. Industrials ETF (IYJ Quick QuoteIYJ - Free Report) – Up 6.6%; Zacks Rank #2

Manufacturing activities are decent in the United States. Business conditions remain good, and demand seems to be solid for the industrials sector. Growing employment in the manufacturing sector calls for that strength (read: 4 Sector ETFs to Play Upbeat November Jobs Data).

Materials

Materials Select Sector SPDR ETF (XLB Quick QuoteXLB - Free Report) – Up 9.04%; Zacks Rank #2

Fidelity MSCI Materials Index ETF (FMAT Quick QuoteFMAT - Free Report) – Up 8.7%; Zacks Rank #2

Upbeat activities in the infrastructure and industrials sectors spurred demand for materials. Orders of Chemical Products remained strong. The U.S. material sector is expected to perform well during a slowdown, as the positive output gap during this phase tends to result in higher prices of basic materials and contribute to profitability, according to State Street Global Advisors’ Sector Business Cycle Analysis.