Investors were relatively optimistic heading into 2022. That quickly dissipated: Stocks fell right out of the gate last year and eventually hit bear market territory (a decline of 20% or more) as interest rates and inflation surged, exacerbated by war raging in Ukraine. Most asset classes suffered losses in 2022. Some highlights include:*
- Global stocks fell 20%
- Volatility surged 40%
- Global bonds declined 16%
- Oil and gold finished flat
- Bitcoin plunged 64%
Whereas COVID was the buzzword for investors heading into 2022, it ended up being inflation for most of the year. Surging oil prices during the middle of the year sent most global markets into a tailspin. Meanwhile, several major central banks accelerated their pace of raising interest rates with hopes of combatting inflation, pressuring stocks even more. And toward the end of 2022, the collapse of cryptocurrency exchange FTX worsened the digital currency winter that has wiped out billions in wealth for owners of bitcoin and other cryptocurrencies.
By year end, there was a clear sector winner surrounded by a sea of losers. Here's a closer look at how stocks performed last year, and what you might expect for 2023.
Energy surged again
After energy rebounded in 2021 from multiyear losses, it was once again the top-performing sector in 2022. Not only were energy stocks the only sector to finish in the green last year, they soared 59% (see 2022 US sector performance table below).

With investor sentiment turning bearish, it's no surprise that defensive sectors (utilities, consumer staples, and health care) easily outperformed the S&P 500, although all lost ground in 2022. All of the cyclical sectors hemorrhaged, excluding energy. As the war in Ukraine dragged on, oil prices surged above $130 per barrel in the middle of 2022. Oil stocks boomed, while all other sectors felt the sting of higher energy costs.
Of note, industrials—while still down for the year—outperformed the broad market, as several industrial industries have significant exposure to the energy sector. Financials—which also finished 2022 in the red—outperformed the S&P 500 as well, as some financial institutions benefitted to an extent from higher rates and stronger net interest margin.
Looking at a longer-term view, technology and health care remained by far the biggest winners.
What could be in store for 2023
There have been 21 down years for stocks since 1945, and 2022 was the fourth worst year among them. According to research from CFRA, the S&P has gained an average of 14.2% following down years, offering some hope for 2023. There have been 12 years of double-digit percentage declines (including 2022) and the returns following those years have not been as strong, gaining an average of 7.8% (although stocks did record gains three quarters of that time).
After a double-digit move either up or down, many active investors wonder if they should buy the winners and ride the momentum or buy the losers to capitalize on value opportunities and/or mean reversion. CFRA notes that history suggests rotating out of defensive groups that held up best during steep declines and rotating into those sectors that fell the furthest.
"Since 1990, which is as far back as S&P has sector-level data, when the market was down in one year, the 4 worst-performing sectors went on to rise an average of 14.8% the following year, versus the S&P 500's typical post-decline gain of 14.0%, and these 4 groups beat the market 56% of the time," according to CFRA. "Conversely, the 4 outperforming sectors during these down years went on to rise an average of 11.6% in the new year and beat the market only 22% of the time."
According to Jurrien Timmer, director of global macro at Fidelity, a likely scenario for this year is that markets lack direction. "My sense is that 2023 could be a sideways choppy market," Timmer notes. "I believe that choppiness could include one or more declines that take us back down to the low the market struck in mid-October (which was the low, so far, for this bear market), but not necessarily much lower than that."
Of course, it's possible to find opportunities even in a sideways market. Fidelity's 2023 sector outlook highlights a range of opportunities across all sectors. For example, among energy stocks, upstream energy producers (those that locate and extract energy) may see their momentum continue into 2023 if oil prices stay elevated. In the consumer discretionary sector, home improvement retailers may benefit from relatively high home prices and mortgage rates that may keep homeowners in place longer, resulting in more improvement spending. In the industrials sector, several themes including sustainability, onshoring of manufacturing capacity, and digitization are presenting growth prospects for manufacturing, equipment, heavy industrial, and storage companies.
Investing implications
Despite the struggles in 2022, the investing picture is still overwhelmingly positive when looking at a multiyear view. US stocks had been on a 3-year winning streak, and even when factoring in last year's double-digit percentage decline, stocks were still up big over the longer term.
To be sure, there are reasons to remain cautious over the short term. There's not as much optimism heading into 2023 as there was at this time last year. With that said, if there is a lesson to be learned from 2022, it's that the mood can shift at any point.