After two strong years of performance, the stock market underperformed in 2022. The major indices were all down more than 20% at some point during the year—a critical level that typically delineates a bear market.

That said, not every sector of the market was down in 2022, and some of the underperforming sectors of the market had bright spots.

A closer examination of sector and subsector performance in 2022 should help investors and traders strategize for 2023. 

For a detailed breakdown on trading sector ETFs, watch this episode of Options Jive on the tastylive network.

Defining the sector ETFs 

The stock market is a general term used to collectively refer to all markets and exchanges where the shares of publicly-traded companies are issued and traded.  

Stock market indices represent a subset of the broader stock market, and are used to measure and track the performance of that specific subset. 

While stock market indices do provide insight into the performance of the greater stock market, one can see how the composition of a given stock market index will largely dictate the type of information provided. 

Some of the better-known stock indices in the United States include the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100. 

The Dow Jones Industrial Average is comprised of 30 blue chip American companies, whereas the S&P 500 is comprised of 500 American large-cap companies. The Nasdaq 100, on the other hand, The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. 

Stock market indices provide insight into a specific slice of overall performance, as opposed to a comprehensive report on the stock market as a whole. The performance of a given index relies heavily on the components of that index. 

Beyond the major market indices, there are also sector ETFs. 

Sector ETFs are groupings of companies that operate in a similar segment of the economy. For example, the Financial Select Sector SPDR Fund (XLF) is comprised of 62 underlying symbols that operate in the financial sector of the U.S. economy and are represented in the S&P 500.

The S&P 500 has ten primary sector ETFs which includes the following segments of the U.S. economy: Basic materials, communications, consumer discretionary, consumer staples, energy, financials, health care, industrials, real estate, technology and utilities.

While the S&P 500 SPDR sector ETFs are the most commonly referenced sector ETFs, there are additional groupings that may also be used when analyzing sector performance in the U.S. stock market, such as the Vanguard Sector ETFs, the iShares Sector ETFs, the First Trust Sector ETFs or the Fidelity Sector ETFs. 

In addition to the ten primary sector ETFs, there are other ETFs that focus on additional sectors or subsectors within the U.S. economy. For example, another popular and highly liquid sector ETF is the Consumer Discretionary Select Sector SPDR Fund (XLY). These additional sector and subsector ETFs may also be referenced, analyzed and traded—depending on one’s unique market objectives. 

2022 sector ETF performance

In 2022, all the major market indices ended the year in negative territory. Losses in the major market indices also translated to losses within the sectors that make up those indices.

The S&P 500 was down 19% overall in 2022, and of the ten primary S&P 500 sector ETFs, only one finished in positive territory. Last year, the Energy Select Sector SPDR Fund (XLE) was up 57%.

Overall 2022 performance in all ten S&P 500 sector ETFs is highlighted below:

  • Energy (XLE), +57%
  • Utilities (XLU), -1%
  • Consumer Staples (XLP), -3%
  • Healthcare (XLV), -3%
  • Industrials (XLI), -7%
  • Financials (XLF), -12%
  • Basic Materials (XLB), -14%
  • Real Estate (XLRE), -28%
  • Technology (XLK), -28%
  • Communication Services (XLC), -38%

Last year, the energy sector clearly benefited from surging prices for oil and gas—primarily driven by Russia’s invasion of Ukraine. As a result, the energy sector saw considerable earnings growth, which was contrary to the broader market trend.

Considering that the tech-heavy Nasdaq 100 index was down 32% in 2022, it’s no great surprise to see that the Technology Select Sector SPDR Fund (XLK) also underperformed last year.

The rapid increase in benchmark interest rates during 2022 also weighed heavily on the Real Estate Select Sector SPDR Fund (XLRE), which dropped by nearly 30% last year. 

But there were several subsectors within the U.S. stock market that did outperform, much like the energy sector. Several examples include medical distribution, insurance, aerospace/defense and drug manufacturing.

Trading sector ETFs

The sector ETFs play a unique role in the trading/investment world because they represent somewhat of a blend between market indices and single stocks.

Much like the major market indices, the sector ETFs are diversified, which means they minimize exposure to single-stock risk. That means a market participant bullish on the energy sector could theoretically deploy a position in the Energy Select Sector SPDR Fund (XLE), as opposed to concentrating risk in a single stock such as Exxon Mobil (XOM) or Chevron (CVX).

However, the sector ETFs are also more targeted, similar to a single stock. For example, if an investor or trader is bullish on the healthcare sector, he or she might utilize the Healthcare Select Sector SPDR Fund (XLV), as opposed to a single company from the healthcare sector. 

Along those lines, options and volatility traders can also utilize the sector ETFs for additional opportunities in the market. 

Much like a stock index or a single stock, the sector ETFs offer listed options that generally possess robust liquidity. That means long or short volatility strategies can be deployed in the sector ETFs, as well as any other options-focused strategy that an investor/trader may be using routinely in other equity products.

To learn more about trading the sector ETFs, check out this installment of Options Jive on the tastylive financial network.

To follow everything moving the markets this year—including the latest earnings updates—monitor tastylive, weekdays from 7 a.m. to 4 p.m. CDT.

Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastylive or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to