The S&P 500 Companies Added 27% in 2021
In the second year of the pandemic, the S&P 500 index jumped 26.9%. The S&P 500 companies recorded 70 all-time highs, which is the most since 1995 when 77 closing highs were recorded. The driving force for this lift was strong earnings growth that was backed by inflation. Other factors include growth of consumer spending, central bank stimulus package, and labour shortage.
Although all the eleven sectors in the S&P ended 2021 with double-digit return, some sectors achieved an extraordinary gain. In the infographic above, we visualize the performance of S&P 500 companies by sector for 2021.
Information Technology Weights the Most Heavily
The eleven S&P sectors constitute: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.
By far, Information Technology sector is the most heavily-weighted. Two company in this sector are in the exclusive $2 trillion club: Apple and Microsoft. Moreover, Apple just hit $3 trillion in the dawn of 2022. The S&P Information Technology index opened at 2250.16 and closed at 3086.76 in 2021, which was a 37.2% gain.
But if we looked at S&P 500 different way, different sectors stood out. Let us focus on the growth rate and explore how much each sector grew in 2021.
The Biggest Gainer Was Energy Sector
The Energy sector was the best-performing sector in 2021, generating a 52% gain. The sector comprises mainly oil and gas companies along with companies that distribute or develop renewable energy sources although some green energy companies are in other sectors. For example, SolarEdge is in the Information Technology sector. Exxon Mobil Corp and Chevron are among big players in the Energy sector.
Why did the Energy sector do so well in 2021? The rebound of oil price may account for the sector’s booming performance.
The previous year 2020 saw one of the biggest collapses of oil price. Analysts pointed out several reasons such as the increased tension between Saudi Arabia and Russia over oil price or the COVID-19 pandemic that officially began in March 2020. After the oil price crushed in April 2020, it slowly increased to the end of the year.
As the vaccine rates increased and optimism for economy rose, oil prices started recovering rapidly in 2021. In October 2021, the oil price hit a seven-year high. Despite requests from oil consuming countries, OPEC+ remained limiting the oil production throughout the year. As a result, the surge in oil price contributed in the energy boost.
The Utility Sector Was Lukewarm Stock
While all the eleven sectors finished the year with a two-digit gain, the Utility sector had the smallest return. However, small gains in this sector might be as expected.
Unlike the volatile Energy sector, the Utility sector is typically stable because the sector consists of companies that provide electricity, natural gas, and water to various customers. The demand for utility, therefore, is likely to be stable, even during a recession. Investors say utility stocks are reliable, low-risk and easy-to-predict.
However, some analysts predict this reliable income earner may be becoming less boring due to climate change disruption. Increasing pressure on the United States and the world to act promptly against climate change may target the Utility sector that uses fossil fuels. Then, the Utility companies will face environmental legislation that limits their production, which may make them invest more in renewable energy. The increased investment in green energy may further indebt the companies that are already heavily in debt.
How Will 2022 Be for S&P 500 Companies?
There was already an interesting move in the S&P 500 index: Apple hit a record $3 trillion market cap on 3rd January 2022. FactSet predicted the S&P 500 index to rise 9.6% in 2022. On the other hand, Bank of America predicted negative returns for 2022. Although predictions vary, it is for sure interesting to watch the market this year after the record-breaking year of 2021.