Reviewing Sector Performance in 2021 and Positioning in 2022

Reviewing Sector Performance in 2021 and Positioning in 2022


Every single U.S. sector, as determined by S&P Dow Jones Indices, posted gains in 2021. You heard that correctly, every single one! Of course, each sector doesn’t move in unison, so let’s explore this a bit further. 

The energy sector was the big winner in 2021, whether it be large-cap, mid-cap, or small-cap companies. They posted 2021 gains of 53.4%, 71.3%, and 60.0%, respectively. Real estate also had a solid 2021, posting gains of 46.2%. 

One thing that we talk a lot about is cyclicality and reversion to the mean. When we are talking about sectors, cyclicality means that sectors generally go in and out of favor. Said another way, a sector that outperforms one year may underperform the following year or vice versa. For example, let’s look at what energy did in 2020 (keep in mind we just talked about it being the big winner in 2021). Returns for large, mid, and small-cap energy stocks were -32.8%, -42.8%, and -40.0% respectively. From 2020 to 2021, energy went from the worst-performing to the best-performing sector. 

Financials is a sector that many are looking at opportunistically in 2022. The reason being is that banks are one of the few places that benefit from rising interest rates. One of the key points to take away is that it’s unlikely that a single sector can consistently be the “winner” year-in and year-out over the long haul.

A Look at Factor Performance

Factors are another variable, like sectors, that move in and out of favor. Most people are familiar with sectors, but might not be able to list as many investment factors off the top of their heads. BlackRock describes factor investing as “an investment approach that involves targeting specific drivers of return across asset classes.” Factor investing is not passive; one tries to find attractive attributes of a security that will enhance returns and/or reduce risk. There are macroeconomic factors and style factors. Similar to the sector discussion above, each of the seventeen factors (among S&P 500 companies) delivered positive returns in 2021. The top performing factor in 2021 was High Beta, at 40.9%. 

One item that many clients have asked about over the last several years is growth versus value. Growth has dominated value in recent memory, including in 2020 when it outperformed value with a 33.5% return vs. 1.4% return. In 2021, S&P 500 growth again outperformed S&P 500 Value, 32.0% to 24.9%. In 2022, we might see growth and value continue to have less of a dispersion compared to the 2010s, where growth significantly outperformed value. Momentum, the worst performing factor in 2021– granted it still produced a 22.8% return – was the third-best performing factor the year prior when it returned 28.3%. Momentum is another good example of a factor that outperformed the general index in one year (2020), only to underperform the index the following year (2021). 

Where to go from here?

Does this mean that you should only own energy? Or only own high beta? Of course not. There is generally a reversion to the mean. Again, most investors need exposure to a diversified portfolio and a disciplined investment process. Rebalancing is one technique to help take small gains over time and not become too concentrated on a single sector or factor. 

Note that diversification doesn’t imply that owning every sector equally-weighted is always the best approach, either. If you own an S&P 500 index fund, you own every sector, but in different weights. If we’re looking at the end of 2021, 29.2% of your S&P 500 exposure would be in information technology alone. Also, keep in mind that true diversification includes more than just sector diversification. Having a mix of uncorrelated assets from a geographic, asset class, and allocation perspective must all be considered when building a diversified portfolio.

Mitch DeWitt, CFP®, MBA

2022 Investment & Market Outlook Guide

Mitch DeWitt’s piece is part of Walkner Condon’s 2022 Investment & Market Outlook Guide, a comprehensive reflection of 2021 and glimpse at the factors impacting the year ahead in 2022.

Another Banner Year or Start of a Drop? The 2021 U.S. Real Estate Market Outlook

Another Banner Year or Start of a Drop? The 2021 U.S. Real Estate Market Outlook

The challenges of 2020 were numerous and seemed unrelenting at times. It was difficult to find the silver lining in a year full of grey clouds. That said, there were a few bright spots in the financial world. The three major U.S. stock indices were all positive for the year as well as the domestic real estate market. Despite the headwinds of COVID, high unemployment, and strained budgets, real estate values continued to push higher with low inventories and historically low-interest rates helping to fuel the fire. The housing market will correct at some point, as all markets do, but will 2021 be the beginning of the drop or another banner year? 

A Brief Recap of 2020 

The U.S. real estate market posted another strong year of sales in 2020. The energy from 2019 continued right on through the majority of 2020. Due to COVID ramping up in the U.S., the first quarter and the beginning of the second quarter forced real estate professionals to adjust from in-person showings and open houses to a more virtual environment. Buyers adapted well to these changes and continued their frenetic pace. Attractive interest rates and low inventories created the perfect environment for sellers to receive top value for their homes.     

The Factors That Could Derail The Housing Market

The landscape for the 2021 real estate market looks quite encouraging, according to many of the experts in the industry. There are a few factors that will have a significant impact on the real estate market. These three factors are especially important because any one of them could be the impotence for a market cool down: 

1. COVID – We have all adjusted our lifestyles to best protect ourselves from the pandemic by reducing contact with others, limiting our travel, and wearing masks. However, if the pandemic really begins to accelerate or a new strain is introduced and causes panic, we could see people limit their exposure events further. Furthermore, if job losses increase, this could make potential buyers and sellers pause any housing activity. This could have a big impact on people’s willingness to go through the buy/sell process.

2. Remodeling – The “new normal” of working remotely and being more self-sufficient at home is creating a perfect environment for people to remodel their existing homes to better fit this lifestyle. People are renovating kitchens, finishing lower levels, and adding offices and workspaces to adapt. This runs counter to the idea of selling a current home and upgrading to a home with those features already in place. The demand for remodeling will likely create the momentum for another positive growth year in that sector.

3. Jobs – The U.S. economy has struggled with high unemployment as a result of the pandemic. Typically, high unemployment will absolutely slow down the real estate market, however, the housing demand stayed strong throughout 2020 in spite of high unemployment. That said, if the unemployment numbers worsen into 2021, then housing may start to feel the effect. 

The Tailwinds That Could Power The Market Through 2021

1. Housing Inventory – For the majority of markets in the U.S., the number of houses on the market isn’t enough to satisfy the number of people looking to purchase a home. This imbalance has helped to push values higher and keep the real estate market momentum strong over the last few years. However, if this imbalance corrects itself by a jump in new construction or more people deciding to sell their homes, the market would adjust and values would flatten out. The chief economist at Realtor.com is predicting new home starts will be up 9% in 2021. However, it doesn’t seem likely to slow the demand in 2021 as both of those variables take time to influence the market.

2. Interest Rates – Mortgage rates have been trending down over the last 2+ years as the 10-year Treasury yield continues to fall. The relationship between mortgage rates and the 10-year treasury is quite strong and has been decades. The friendly interest rate environment being utilized by the Fed is likely to continue, at least into, if not through the year 2021, which will keep mortgage rates at or near all-time lows. This is a huge motivating factor for buyers looking to purchase a home.

3. COVID Vaccines – While the initial rollout of the COVID vaccine is running at a slower pace than what was predicted, the experts believe that we will be back on track within the next month or two and hopefully have the majority of Americans vaccinated by mid-year. This could go a long way to instill confidence in the general public and provide additional fuel for an already hot real estate market, especially if real estate professionals can resume in-person showings for the late spring and summer months. The summer months could be phenomenal if consumer confidence accelerates. 

Outlook for 2021

Barring any unforeseen circumstances, as we all struggled with in 2020, the trends are leaning towards another strong year in the real estate market. We are likely to see the tailwinds mentioned earlier prevail for the entirety of 2021 and demand should continue at the previous year’s pace as a result of not enough inventory. Real estate markets, especially in the Midwest, tend to correct slower than the stock or the bond markets. The coastal markets in the U.S. do move faster and will be more susceptible to unpredictable events; however, the momentum is still strong across the country. The variables are in place for demand to outpace supply and attractive financing options to continue for at least 12 more months.

Nate Condon


This piece was part of Walkner Condon’s 2020 Review & 2021 Investment Outlook Guide, a comprehensive interactive PDF covering a wide range of subjects and trends, including the S&P 500, electric cars, and more. To read the full guide, please click the button below.

Investment Guide: Reviewing 2020 and Financial Outlook for 2021

Investment Guide: Reviewing 2020 and Financial Outlook for 2021


With all of our advisors contributing content, this is Walkner Condon Financial Advisors’ first-ever comprehensive investment guide. The guide covers a wide-range of topics – from electric cars to the S&P 500 to sustainable investing, as well as some trends we see in the markets in 2021. The COVID-19 pandemic has affected nearly all aspects of our lives, and that thematic undercurrent runs throughout the course of this guide, both in the review of 2020 and the year that lies ahead.

COVID-19 and the Real Estate Market

COVID-19 and the Real Estate Market

The Coronavirus is affecting our lives in many different ways. Eating in with carryout and delivery instead of reservations at restaurants and bars, Zoom meetings and teleconferences instead of office meetings, waves instead of handshakes and hugs; the world is a different place than it was two months ago.

More of the Same….and Then It Wasn’t

The beginning of 2020 looked quite similar to the start of the last few years in the housing market. Then, as we know, everything changed in March with COVID-19. We are now left with many more questions than answers. Mortgage rates have fallen to even lower levels as the Fed is desperately trying to help the economy. This, in turn, created a glut of refinancing applications for mortgage lenders. However, the negative economic impact of COVID-19 is far reaching, creating tremendous liquidity problems within the banking system. It is difficult to close on a mortgage refinance when the money to pay off the existing mortgage is in limbo, or lock a rate on a mortgage application when the lender has no idea how long it will take to get to a closing table. Delinquencies on existing mortgages will certainly increase as homeowners deal with an uncertain job market, leading one of the country’s largest mortgage lenders, JPMorgan Chase, to change their lending guidelines in recent weeks.

Uncertainty Abounds 

The economy is in a very different place as well. Strong earnings reports and record low employment numbers have been replaced with the utmost of uncertainty. Almost every aspect of the economy is dealing with some level of ambiguity, with the housing market taking center stage. The housing market over the past decade has been, for the most part, quite strong. This has been fostered by low interest rates, ample cash liquidity, and friendly lending guidelines. This, however, has led to the issue of low inventory and excess demand for the last few years. While this has been positive for house prices and mortgage applications, it has created an imbalance. Builders are trying to take up the slack by fast-tracking new home construction, and anyone remotely interested in selling a home has been enticed with the idea of completing offers to purchase within days, instead weeks or months.

Housing Recession Imminent?

With all of this said, it would be easy to assume that the housing market is headed for a recession of its own, but I wouldn’t be so quick to come to that conclusion. This is one of the more resilient components of the overall economy. People need to buy and sell houses every day, regardless of what is happening in the rest of the economy. We will likely have a low interest rate environment for the foreseeable future, which should keep the market somewhat stimulated. 

What To Do?

What should you do if you are in the process of a refinance or house sale/purchase? First things first…don’t panic! Nothing good will come with trying to force the process to go faster or demanding that things happen. The task at hand will require more patience and understanding than in previous years. The refinancing timeline has shifted to a couple of months versus a couple of weeks. Locking rates will almost certainly become more difficult than it was before, and underwriting guidelines are changing. My recommendation would be to work with a mortgage lender who is in touch with the current protocol and can guide you through the process. You need to be working with a lender who provides specific advice and has a strategy for operating in this environment. This, in my opinion, isn’t the time for the internet lender who is offering a teaser rate of slightly below the market rate. This is a time for trusted advisors. If you need a recommendation, please let us know and we would be happy to provide you with the contact information of different lenders.

Nate Condon