Wall Street rally in 2021 can be largely attributed to the corporate earnings growth and economic recovery from the pandemic-led slowdown. The S&P 500 index jumped 26.9% in 2021, highlighting the benchmark’s third consecutive positive year. The Dow Jones Industrial Average and the Nasdaq Composite index also witnessed three- consecutive years of ending in the green territory, gaining 18.7% and 21.4% for 2021, respectively.
In this regard, Wells Fargo (NYSE:WFC) Investment Institute’s Chris Haverland has commented that “The economic and earnings rebound that started in 2020 carried over into 2021, lifting equity markets to record highs. While returns in 2020 were driven by price-to-earnings multiple expansion, returns in 2021 were driven by earnings growth,” as stated in a CNBC article. Per the FactSet data, the projected year-over-year earnings growth rate is 45.1% for 2021 (according to a CNBC article), highlighting the highest annual earnings growth rate for the index since FactSet started tracking the metric in 2008.
The year 2021 witnessed stellar performances by sectors like energy and real estate in the S&P 500, which climbed more than 40% each. Technology and financial sectors also increased more than 30% in the last year.
Here we highlight some ETFs belonging to the top-performing S&P 500 sectors in 2021 for investors to park their money in 2022:
Energy ETFs
Investors have been closely tracking the energy sector,showing strength as the global demand and economic growth levels are on the path of recovery from the pandemic-led slump. The coronavirus vaccine rollout is gradually helping control the outbreak's spread across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
According to a CNBC article, energy stocks are witnessing the best year in more than three decades. The sector has gained more than 40% for the year. Crude prices also increased nearly 60% this year as the demand outlook improves with the economic reopening.
Here are some options for investors to consider -- Invesco Dynamic Energy Exploration & Production ETF PXE, Vanguard Energy ETF (NYSE:XLE) VDE, Fidelity MSCI Energy Index ETF (FENY), The Energy Select Sector SPDR Fund (XLE) and iShares U.S. Energy ETF (IYE) (read: Energy Emerges the Best Sector of 2021: 5 ETFs Up At Least 70%).
Real Estate ETFs
The real estate sector received support from lower interest rates and improving economic conditions in 2021. The housing market steadily benefited from low borrowing costs and changing demographic preferences of a large chunk of the population as people increasingly looked for work-from-home-friendly properties. Individuals were shifting from city centers to suburbs and other low-density areas, looking for spacious accommodations for home offices and schools, per sources. Though the Fed has turned hawkish, mortgage rates are still near historic lows that encourage people to buy more homes, making refinance cheaper.Moreover, a lack of resale inventory and strong consumer demand supportsingle-family homebuilding.
Going on, the U.S. economy is recovering, marked by improved economic conditions, an increase in wages and climbing consumer confidence. Growth in the economy generally improves demand for real estate, increasing occupancy levels and landlords’ greater power to haggle for higher rents. Rising home prices are also driving the real estate sector higher as more consumers opt for spaces for rent.
Investors can consider Vanguard Real Estate ETF VNQ, iShares U.S. Real Estate ETF IYR, The Real Estate Select Sector SPDR Fund (XLRE), iShares Residential and Multisector Real Estate ETF (REZ) and Invesco S&P 500 Equal Weight Real Estate ETF (EWRE) (read: ETF Ways to Play Santa Rally's Best Start in 20 Years).
Technology ETFs
Technology has played a major role in the ongoing health crisis. Telemedicine and Digital Health are receiving significant importance. Data management and storage have become integral aspects of healthcare in today. Thus, with the technological advancements in the healthcare sector and the rising adoption of healthcare IT solutions as well as advantages of cloud usage healthcare, the cloud computing market is on a growth trajectory.
The work-from-home model has bumped up sales of PCs, laptops and other kinds of computer peripherals. Certain other ‘new normal’ trends have also emerged amid the health crisis like work from home, increasing digital payments, growing video streaming and soaring video game sales. The pandemic has been a blessing in disguise for the e-commerce industry to date as people continue to practice social distancing and shopping online for all essentials, especially food items.
Investors willing to be part of the tech rally can bet on some top-ranked technology ETFs like Vanguard Information Technology ETF VGT, The Technology Select Sector SPDR Fund XLK, iShares U.S. Technology ETF (IYW) and First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) (read: Apple (NASDAQ:AAPL) Close to Hitting $3T Market Cap: 5 ETFs to Buy).
Financial ETFs
Several factors can be working in favor of the financial sector. The Federal Reserve tapering its monthly bond purchases “later this month” can work for the space. The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. Notably, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand.
Here we highlight some ETFs that can gain from the bright prospects for the financial sector: Invesco KBW Bank ETF KBWB, The Financial Select Sector SPDR Fund XLF, Vanguard Financials ETF (VFH), iShares U.S. Regional Banks ETF (IAT) and SPDR S&P Bank ETF (KBE) (read: Inflation to Stay Hot in Early 2022: ETF Strategies to Win).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Vanguard Real Estate ETF (VNQ): ETF Research Reports
Financial Select Sector SPDR ETF (NYSE:XLF): ETF Research Reports
Technology Select Sector SPDR ETF (NYSE:XLK): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
Invesco KBW Bank ETF (KBWB): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
iShares U.S. Real Estate ETF (IYR): ETF Research Reports
Invesco Dynamic Energy Exploration & Production ETF (PXE): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research