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Equities: Will Last Year’s Near Perfect Sector Rotation Continue in 2023?


Equity markets reversed direction in two distinct ways in 2022. First, and most obviously, major indices such as the S&P 500®, Russell 2000, Dow and Nasdaq 100 fell after rising sharply in 2020 and 2021. Secondly, and not as apparent, was a near perfect sector performance reversal. The sectors that had performed well in 2020 and 2021 declined, whereas sectors that had performed poorly in 2020 and 2021 generally rebounded (Figure 1). Figure 1: 2020-21 versus 2022 sector returns correlate at -0.81

There are 17 U.S. equity sectors on which there are listed futures contracts. These 17 sectors 2020-21 versus 2022 total returns yields a correlation coefficient of -0.81. The most striking reversals came in six sectors:

  • The PHLX Semiconductor Sector Index returned +121% over 2020 and 2021, and -34% in 2022

  • The S&P 500 Select Information Technology Index returned +90% over the course of 2020 and 2021, only to lose 34% in 2022.

  • The S&P Select Retail Industry Index returned +44% over 2020 and 2021, and -25% in 2022

  • The S&P 500 Select Consumer Discretionary Index, which includes automakers, airlines and luxury goods makers, returned +63% over 2020-21, and -38% in 2022.

  • The S&P 500 Select Energy Index lost 8% over the course of 2020 & 2021, and returned +59% in 2022.

  • The S&P Oil & Gas Exploration & Production Select Industry Index returned 8% over 2020-21, positive but far below the S&P 500’s overall return of 53% over the same period. In 2022, the index returned 44% to investors even as the S&P 500 returned -18.5%.



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