The second quarter of 2022 is officially over. It’s time to take stock of the sector.

Inflation and rising interest rates remain the main factors impacting the markets. All sectors were down in the second quarter and the S&P 500 had its worst half since 1970.

The S&P 500 was down 16.4% for the quarter and is now down 20.6% on the year. The only sector in positive territory for the year is the energy sector, although the utilities sector was down less than 1%.

The energy sector had made much more progress, but in early June it began a massive sell-off that drove it into negative territory in the second quarter.

The Consumer Discretionary sector is in last place for the quarter with a return of -25.5%.

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Let’s take a look at Q2 2022 performance, sector by sector. Note that all returns discussed here are total returns, which include the effect of dividends paid during the year.

11 Sector Review

The selected sector SPDRs are targeted exchange-traded funds (ETFs) that divide the S&P 500 into 11 sector index funds. These sectors are Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Healthcare, Industrials, Materials, Real Estate, Technology and Utilities. The 11 selected sector SPDRs represent the S&P 500 as a whole.

The top four performing sectors were all sectors that historically performed best before a recession or during a recession.

The best performing sector in the quarter was a defensive sector, Consumer Staples. It was down, but it was the closest to breakeven for the quarter. This sector includes companies involved in the development and production of consumer products that cover the retailing of food and medicine, beverages, groceries, tobacco, household products and personal products. Component inventories include Procter & Gamble (NYSE:PG), Philip Morris International (NYSE: PM), and Coca Cola (NYSE: KO).

Another defensive sector, Utilities was not left out. This sector has now outperformed the S&P 500 for three consecutive quarters. The main headwinds for the sector continue to be inflation fears and rising bond yields. Companies that produce, generate, transport or distribute electricity or natural gas primarily constitute the utilities sector. Component companies include NextEra Energy (NYSE:NEE), duke energy (NYSE: DUK), and Domination (NYSE:D).

The performance of the energy sector had a considerable lead over all other sectors until it fell in early June. However, energy was the only sector to post a positive return in the first half, up 31.5%. It also leads all companies over the past year with a 12-month return of 38.9%. Energy and Utilities are the only sectors to post double-digit returns over the past year. Chevron (NYSE: CLC), Conoco Phillips (NYSE:COP), EOG Resources (NYSE: EOG), and Schlumberger (NYSE: SLB) are major constituents of the energy ETF.

The health care sector is another historic “recession-proof” sector, and it outperformed in the second quarter. The sector includes healthcare equipment and supplies, healthcare providers and services, biotechnology and pharmaceutical industries. Health care sector indicators include Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE: PFE).

The real estate index was the second best performer in 2021 with a return of 46.1%, but it was the first in a series of double-digit losers in the second quarter. This index is composed primarily of real estate management and development companies and real estate investment trusts (REITs). Simon Property (NYSE: SPG) and American tower (NYSE: AMT) are among the largest representatives of this group.

The industrial sector performed well at 21.1% in 2021, but it fell along with the rest of the market. Component industries include building products, construction and engineering, electrical equipment, conglomerates, machinery, and aerospace/defense. Important constituents of the industry sector include Boeing (NYSE:BA), 3M (NYSE: MMM), and Honeywell (NYSE:HON).

The Materials sector was the last sector to outperform the S&P 500 in Q2 with a return of -15.9. This sector includes companies that produce chemicals, construction materials, metals and mining, paper and forest products. Among its most important components are DowDuPont (NYSE: DWDP) and Sherwin-Williams (NYSE:SHW).

The financial sector had a decent first quarter, so it outperformed the S&P 500 in the first half, although it underperformed in the second quarter. In addition to banks, this group includes financial services companies, insurance companies and consumer finance companies. Big companies include Berkshire Hathaway (NYSE: BRK.A, BRK.B), JPMorgan Chase (NYSE: JPM), and Citigroup (NYSE:C).

Technology drove the S&P 500 into bearish territory and underperformed the S&P 500 for the second quarter and for the first half of 2022. This sector includes technology hardware, storage and peripherals; Software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment. The components of this ETF include Apple (NSDQ:AAPL), Microsoft (NSDQ: MSFT), and Intel (NSDQ:INTC).

Communication services continues to struggle, followed its last place in 2021 with the second worst performance in the second quarter of 2022. In the first quarter, it was also the only sector in the S&P 500 with a double-digit loss, down 11 .2%. This sector includes diversified telecommunications services, wireless telecommunications services, media, entertainment and interactive media and services. Components include Facebook (NSDQ: FB), Alphabet (NSDQ:GOOGL), and AT&T (NYSE:T).

The consumer discretionary sector is regularly challenged during a recession as consumers reduce their purchases of discretionary items. Lower revenue expectations sent this sector to the bottom of the heap for the second quarter and first half of 2022. This sector includes industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, entertainment, media and retail. It is made up of companies such as Amazon (NSDQ: AMZN), Home deposit (NYSE: HD), and waltz disney (NYSE: DIS).

In summary, we are looking at very difficult market conditions. Gasoline prices have been falling over the past two weeks, and if that continues, that will help. But it’s still a little too early to see the light at the end of the tunnel.

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