Will 2022 Be A Setback For Energy?:

A few times a year I like to highlight this chart which shows the annual returns of the major S&P sectors. Almost always the chart below from the Novel Investor is used when I am authoring an energy note. Going back to 2007 one notices that energy is very rare to be the top-performing group, but it did occur in both 2007 and 2016 with the XLE jumping in the 30% neighborhood. What one sees here is that the following year produced a negative return. In fact, overall the group has been weak, especially recently as it was the worst or second-worst actor 5 of the last 6 years (and 8 of the last 9 years it underperformed the S&P 500). Being that energy is by far and away the stellar sector will next year be a disappointment? Of course, no one knows the answer to that question, and bulls will utter the proverbial “it’s different this time.” The group is disdained as much as it ever has been leading to very soft, historically low weightings in the S&P 500. 2022 will be an interesting one for sure, and bears may be caught off guard and in for another round of pain.

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