us stock market wall street

Favorite ETFs to Watch in 2023

By:Christopher Vecchio - CFA

There’s no other way to put it: 2022 was a bad year for stocks. Marked by the S&P 500 (/ES) falling nearly -19% and the Nasdaq 100 (/NQ) dropping by over -32%, 2022 was the worst year for US stocks since 2008, when the Global Financial Crisis was beginning to rage.

But even as the major indices faltered, not all stocks crumbled. Relative to the S&P 500, several sectors outperformed the headline index in 2022:




vs S&P 500









Consumer Staples












Financial Services




Basic Materials




Real Estate








Consumer Discretionary




Communication Services




A glance at the outperformers and underperformers yields an important insight: this is fairly typical performance of different sectors of the market when the US economy is moving from “late recovery” to “early recession.” The sectors that usually perform better than the broader market during this period are Energy (XLE), Staples (XLP), and Healthcare (XLV) (“late recovery) and Healthcare (XLV), Utilities (XLU), and Financial Services (XLF) (“early recession”) - and that’s exactly what happened in 2022.

Heading in 2023, it appears that the US economy faces additional challenges as the Federal Reserve maintains its policy of elevated interest rates, with more interest rate hikes still in the pipeline. As a result, in the first quarter of 2023, it may be the case that the “early recession” playbook still works, with Healthcare (XLV), Utilities (XLU), and Financial Services (XLF) outperforming the broader market.

Given the tendency of financial markets to bottom out before the US economy exits a recession, it may be the case that, once the Federal Reserve ends its interest rate hike cycle, that a different set of sectors outperforms the broader market. As the market bottoms, perhaps by mid-2023, Financial Services (XLF), Technology (XLK), and Consumer Discretionary (XLY) should become the leaders, and Energy (XLE), the lone sector to both outperform the S&P 500 and finish positive in 2022, may prove to be a laggard.

— Written by Christopher Vecchio, CFA, Head of Futures & Forex

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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