This has been a terrible year for Wall Street. High inflation, rising rates, geopolitical tensions and supply-chain woes due to the zero-Covid policy in China made matters more difficult this year. The S&P 500 is off 17.5% this year (as of Dec 9, 2022).

The Federal Reserve raised the target range for the federal funds rate by 75 bps to 3.75%-4% during its November 2022 meeting to tame the 40-year high inflation, marking the sixth successive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008.

The aggressive approach has triggered worries about a looming recession. This along with an uncertain Fed rate outlook has kept the markets edgy in the final month of the year too. However, the U.S. economy so far has remained on a decent footing and grew an annualized 2.9% sequentially in Q3 of 2022, better than an initial estimate of 2.6%, and beating forecasts of 2.7%.

The job market has remained stable and the inflation profile too is showing signs of the result of Fed rate hikes, Against this backdrop, below we highlight the top-performing sector ETFs of 2022.

Energy

Energy Select Sector SPDR Fund (XLE Quick QuoteXLE - Free Report) – Up 57.6%

Oil prices have been among the most-typed investment searches this year. The coronavirus vaccine rollout is gradually helping to control the spread of the outbreak across the globe. Factors like easing Omicron concerns, supply shortages, and geopolitical tensions in Eastern Europe and the Middle East have boosted oil prices this year. Though heightened recessionary fears have weighed on the prospects of oil consumption in recent months, the OPEC output cut outlook and the reopening of Chinese cities have kept the space bright (read: Pain or Gain Ahead for Energy ETFs?).

Materials

SPDR S&P Metals & Mining ETF (XME Quick QuoteXME - Free Report) – Up 15.7%

With the year being favorable for the commodity market, metal and mining stocks performed better. The fund holds majorly steel firms, while coal & consumable fuels, aluminum and Diversified Metals & Mining round off the next three spots with double-digit exposure each. Chinese authorities’ latest announcement of supporting the country’s giant but debt-ridden property sector raised expectations of stronger demand for construction inputs.

Consumer Staples

First Trust Nasdaq Food & Beverage ETF (FTXG Quick QuoteFTXG - Free Report) – Up 8.7%

The consumer staples industry is also managing inflation with the procedure of “shrinkflation.” The term describes the maintenance of companies’ margins by shrinking consumer products in weight, size or quantity while their prices remain the same or are increased. As companies are striving with high raw materials costs and supply-chain issues, many are cutting their product sizes and weights to maintain profit margins.

Utilities

Invesco S&P 500 Equal Weight Utilities ETF – Up 4.6%

The utilities sector is a great investment for those seeking yields and safety but should be avoided by those expecting market-beating returns. It is among the most stable sectors over the long haul and its players are likely to be decent investments. Though the sector underperforms in a rising rate environment, the sheer non-cyclical nature of the sector has kept the ETF on the radar.

Healthcare

First Trust Nasdaq Pharmaceuticals ETF (FTXH Quick QuoteFTXH - Free Report) – Up 4.3%

The healthcare sector has remained better-positioned, driven by increased volatility. Added to the strength is its non-cyclical nature, which provides a defensive tilt to the portfolio amid market turmoil. It is one of the few sectors that has been adding jobs constantly, indicating increasing activities in the sector.