Energy is #1 Sector of 2022

Although markets have been volatile in 2022, stocks are actually doing a pretty good job of hanging in there.

The S&P 500 (SPY) is coming off its best week in almost two years, gaining 6% this week. After the gain, the leading index is down 7% on the year.

The tech heavy NASDAQ 100 (QQQ) was down as much as 21% on the year. But the index jumped 9% this week and trimmed its 2022 decline to 12%.

The Vanguard Global Stock Fund (VT) is down 7% on the year.

Take a look at the chart below – you can see the 2022 performance of each index.

Even though stocks are down on the year, they are actually holding up pretty well considering the challenges of 2022.

  • Inflation at a 40-year high.
  • Rising interest rates that slow the economy and stocks.
  • War in Europe.
  • Potential recession in the second half of 2022.

All factors considered the stock market is holding up pretty well in 2022. Looking forward, I expect markets and stocks to remain volatile.

However, in the coming weeks and months I expect stocks to stabilize and I think there is still a good chance the S&P 500 can close the year with a gain.

Here’s my plan for clients of my wealth management business:

  • Use weakness in stocks to deploy more cash into the market.
  • Focus on conservative assets: Index funds and bond funds.
  • This is still the time to be conservative and avoid high-risk stocks.

Energy Stocks are on Fire

While the broader stock market has been weak, energy stocks have been crushing it. Energy is easily the top performing sector of 2022, up 15% on the year. The next best sector is transportation up 1% on the year and the only other sector in the green. Take a look at the chart below.

I expected energy stocks to do well in 2022. There were a number of catalysts.

  • Inflation supporting higher oil prices.
  • Global conflicts supporting higher oil prices.
  • Global energy regulations supporting higher oil prices.
  • $100 oil means big profits for energy companies.

These are the reasons energy stocks have exploded higher in 2021 and 2022. For example, Devon Energy (NYSE: DVN) is a leading U.S. energy company with headquarters in Oklahoma City, Oklahoma and a market value of $40 billion. The company specializes is exploring and drilling for oil, natural gas and natural gas liquids and currently owns about 5,000 wells in the U.S. This company has major leverage to the price of oil – so with oil prices surging Devon has been reporting record results and that is driving shares higher.

Devon shares are up 28% in 2022 and 161% in the last 12 months.
Devon Energy was literally the #1 performing stock in the S&P 500 in 2021.

Check out this crazy 30-year chart on Devon. Shares were surging for 20 years in the 1990s and 2000s. Shares were then crushed crushed for 12 years from 2008 to 2020. More recently, we have seen a massive rebound in 2021 and 2022. Take a look at the 30-year chart below.

What Happens Next?

Naturally, after the big gain, some investors are asking if it’s too late to get into energy stocks?

My simple answer is no. I think energy stocks are still in the early stages of a long-term trend higher. I will continue to recommend these stocks to my clients. To learn more about my outlook on energy stocks read the report below.

Has the next commodities super cycle arrived?

Here is my plan for energy stocks: These stocks have been up a lot in the last 12 months. Therefore, I will be patient when adding new shares and looking to buy when the market is down.

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.. Author Michael Vodicka owns shares of Devon Energy (DVN).

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.