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As 2022 Begins, Investors Go on the Offensive

By Dan Caplinger – Jan 3, 2022 at 2:34PM

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Forget careful stocks -- the first day of the year shows signs of hope for a cyclical boom.

Wall Street wasted no time starting the year on a positive note, as major market benchmarks pushed higher amid signs of optimism in the investing community. As of 12:45 p.m. ET, the Dow Jones Industrial Average (^DJI 1.26%) was up 66 points to 36,404. The S&P 500 (^GSPC 1.44%) climbed 10 points to 4,776, and the Nasdaq Composite (^IXIC 1.74%) gained 103 points to 15,747.

Even as markets have soared over the past 21 months, investors seemed to be on their back feet as they prepared for expected trouble in the economy. However, even with COVID-19 case counts surging, the moves that investors are making on the first trading day of 2022 suggest that they're ready for a full-blown economic boom in the coming year. In particular, the best-performing sectors on the day have a decidedly cyclical bent and could continue to surge higher if the favorable trends investors expect manage to persist.

Three big winners

Halfway through the first trading day of the year, investors are expressing their belief that the economy is strong. The best performer from a sector perspective on the day is energy, with the Energy Select Sector SPDR (XLE 0.69%) rising almost 2.5% at midday.

Person turning a valve at an energy facility.

Image source: Getty Images.

Energy prices tend to perform well when manufacturing activity is at its strongest. Even after a big oil-price increase in 2021, consumers seem willing to pay up at the pump and deal with higher costs of heating homes. Crude started the new year moving higher, as well, climbing more than $1 per barrel to move above the $76 mark. That helped send energy stocks higher, with Chevron (CVX 0.47%) leading the way upward by 1.5% and other, smaller companies seeing even larger gains.

Also getting attention, consumer discretionary stocks were on the uptick, with the corresponding-sector ETF gaining almost 2%. Consumers overall are flush with cash, and the return of some pandemic-related restrictions could actually drive further investment in discretionary items like home improvement and furnishings, autos and recreational vehicles, and consumer electronics.

Lastly, financial stocks were big winners, with Wells Fargo (WFC) leading the way higher with a 5% rise. Banks, overall, stand to benefit from economic strength, as a resulting steeper yield curve would boost net interest income. Wells, in particular, hopes that the Federal Reserve will remove its asset ceiling in 2022, but it could also rise along with the rest of the big banks, even if regulators aren't inclined to lift restrictions on the California-based banking giant.

Giving up on defense

By contrast, sectors that are seen as traditionally defensive in nature performed poorly. Healthcare, utilities, and real estate were all down more than 1% on the day, and consumer staples stocks fell about three-quarters of a percent.

Of course, a single half-day's worth of trading isn't enough to draw any firm conclusions about investor behavior for the full year, let along the long run. Among the potential dangers the market faces include the threat of aggressive Fed monetary-policy tightening, further supply-chain issues prompted by ongoing pandemic-induced shutdowns, and persistent political wrangling in Washington that leads to an end to the favorable fiscal-policy stance that the White House and lawmakers have shared throughout much of the past two years.

Nevertheless, investors should keep an eye on the way the market is beginning the year. If it continues, then 2022 could be a big year for the cyclical stocks that have largely lagged behind flashier sectors like energy recently.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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