Published - September 30, 2022 @ 4:14 PM (EET)
The potential for global economic growth started weakening even before the Ukraine crisis, and although market uncertainty may have peaked in the first half of 2022, it still remains high.
The tech-heavy Nasdaq and Russell 2000 indexes had been in bear market territory for a while, with some stocks having fallen nearly 90% from their all-time highs.
When stock prices are struggling, there's an opportunity to buy, but the head of SPDR Americas research at State Street Global Advisors, Matthew Bartolini, warns against buying a stock low just because it's low.
Now that the era of easy money is over after investors watched the stock market hit record highs during the pandemic, the main focus is profitability, says Bartolini.
Thus, with technology giants like Netflix and Meta being down around 67%, and 42% for the year, respectively, here are other sectors to consider investing in 2022:
1. Utilities (Basic services)
Basic services, as its name suggests, include essential services at home, businesses, and industries, like water and electricity.
Though Indices that cover them do not necessarily provide extraordinary returns, they are the most stable for investors looking for long-term holdings.
In addition, utilities traditionally have higher dividend payout ratios than other companies, with most targeting a payout between 60% to 70% of their earnings, well above the 40% average of higher-yielding stocks in the S&P 500.
Since people need electricity to run at-home appliances and fuel their cars, the unending global demand for power makes the energy sector a safe bet for investment.
2. Biotechnology (Healthcare)
Evidently, for the healthcare industry, one of the largest and most complex sectors, the successful development of vaccines to fight the ongoing Covid-19 pandemic has meant a significant increase in popularity.
Major players in the healthcare sector have amassed a significant hoard of cash over the last (almost) three years, some of which will probably be spent to acquire promising biotechs, with a key focus on areas like oncology, inflammation, and new technologies.
According to analysts, mergers and acquisitions for biopharmaceuticals would reach up to $617 billion in 2022, while the total market size is forecasted to exceed $2.44 trillion by 2028, recording a compound annual growth rate of 7.4%.
As presented by the Health Care Select Sector SPDR ETF (XLV), healthcare stocks have outperformed the broader market in 2022, with some offering some of the best value, fastest growth, and most momentum.
3. Finance (Banking)
While banks make up the largest part of the financial sector, several other types of companies are also included in the field and vary widely by function, size, growth potential, and other factors.
During the pandemic, bank stocks have been some of the worst performers. However, rising yields on US 10-year treasury bonds have a proven favorable effect on the financial sector, especially banks.
As the Fed starts to raise interest rates next year, 10-year yields are also expected to climb, with Wells Fargo analysts projecting a 2-2.5% return by the end of 2022.
It is worth noting that banks with a higher share of interest-free deposits and a higher percentage of floating-rate loans will look the strongest.
IN SUMMARY
Given the resilient demand for its services, utilities offer a more defensive option amid increasing market volatility in 2022.
Elsewhere, the healthcare sector has caught investors' attention since the onslaught of COVID-19 and its vaccine distribution, while investment banks such as Golman Sachs have benefitted from massive volatility and supply chain disruptions in commodities markets that began in 2020.
