The past year has been nothing short of surprising. After COVID-19 disrupted the entire global supply chain in 2020, followed by strong rebounds in 2021, 2022 has demonstrated the continued fragility of the worldwide economy.
This article will analyze the four best-performing industries in 2022 and explain what major global events this year influenced these results. Since there are no winners without losers, we will also mention industries with the strongest headwinds and those that experienced massive valuation wipeouts. In addition, we will also discuss a few players and sectors who managed to keep afloat despite adverse global economic conditions and who are likely to perform better in 2023 and beyond.
2022 in Retrospective:
As 2022 comes to a close, The year is almost over, and the Russian invasion of Ukraine will be the major global event that will mark the year. However, the energy crisis generated is a direct consequence of war, and the Covid-19 pandemic is still background noise, despite a decrease in press coverage.
We analyzed the best-performing industries based on the top non-leveraged Exchange Traded Funds (ETFs) and their year-to-date (YTD) performance. ETFs are funds that trade on exchanges, generally tracking a specific index. Industry ETFs track specific indexes associated with certain sectors of industry.
Measuring industry performance through ETFs is a suitable method because each ETF will include detailed information about its benchmark sector and index, major holdings, ticker symbol, fees, and historical performance.
Top Performing Industries in 2022:
It should be no surprise that energy companies top the list of best performers, given the supply and demand imbalance generated by the post-covid recovery and current geopolitical tensions. As a result, oil and gas (O&G) energy commodities have become a central topic of conversation on a local and global scale.
The energy industry primarily consists of O&G companies related to production, distribution, exploration, equipment, and services. In 2022, disruptions to the global oil supply due to sanctions and the war in Ukraine have helped remaining companies in the sector experience unprecedented revenue growth. For example, Blackrock’s iShares US Oil & Gas Exploration & Production ETF currently has a whopping 72.44% YTD return, Vanguard Energy ETF a 70.26% YTD return, and the Energy Select Sector SPD Fund now measures a 69.99% YTD return.
To put these numbers in perspective, the Dow Jones Industrial Average performance is -8.30% YTD, and looking at the S&P 500, the numbers are even worse, with -19.46% as of November 8th closure.
And it’s unlikely that these numbers are going to stabilize in the near future. As the war in Ukraine, intensifies and Europe enters its winter season, demand for oil by European states imposing sanctions on Russian-supplied gas will continue to drive demand higher.
Aerospace and Defense Industry
In February of 2022, Russia’s invasion of Ukraine sent shockwaves worldwide, particularly throughout the defense sector. Although the full implications are still unfolding, the conflict between the Slavic states is already influencing global defense budgets. In April, global military expenditure surpassed $2 trillion per year for the first time. European countries beefed up their armed forces in response and preparation for the activation of the NATO agreement. According to PwC analysis, the aerospace and defense industry reported $712 billion of revenue in 2021–up 4% compared to 2020. European nations reassessed their defense postures and, in several cases, increased spending, like Germany reaching 2% of their GDP. In addition, the tension in the Asia-Pacific region impacted certain countries’ stances on defense, with collaboration and interoperability becoming the key focus areas. Even Japan, known for its pacifist constitution, is considering sharply increasing its defense spending to more than $279 billion over the next five years, doubling from 1% of its GDP to 2% by 2027.
By the end of 2022, the industry will likely report at least single-digit revenue growth by looking at the iShares U.S. Aerospace & Defense ETF’s current performance, which is up 8.6% YTD.
Key players such as Lockheed Martin, which in 2021 was the largest defense company in the U.S., saw their stock price increase by 38% in 2022. In addition, Raytheon Technologies Corp., one of the world’s largest aerospace and defense manufacturers, saw revenue and market capitalization grow 10.30% YTD. Other noteworthy performances include BAE Systems, the largest defense contractor in Europe, holding a 41% increase in stock price performance YTD.
Conversely, aerospace and aviation giants Boeing and Airbus SE struggle to replicate last year’s post-pandemic recovery numbers, with current YTD stock prices down -18% and -2.7%, respectively.
Last year, the aerospace and defense deals activity set a record, topping $100 billion in value, driven mainly by unique purpose acquisition company (SPAC) activity. However, early this year, US regulators clarified that they would not support further large-scale consolidation of companies within the defense industrial base dealmaking slowed during the first half of 2022, related partly to greater SEC scrutiny. Nevertheless, despite these headwinds for consolidating companies within the sector, the industry performed exceptionally.
Although defense and aerospace industries have primarily focused on positioning themselves for future military conflict at this stage, the aviation industry is evolving to focus on scaling sustainable aviation fuel sources to achieve net-zero carbon emissions. Moreover, the long-term outlook is quite bullish for the sector, considering that approximately 82% of the global population has never experienced an aircraft flight. Furthermore, the international middle class is projected to grow to 60% by 2030, equating to billions of new potential customers and many opportunities to reinvent the travel experience with new services and personalization strategies.
Renewable Electricity Producers
The 2022 United Nations Climate Change Conference, or Conference of the Parties of the UNFCCC (COP27), took place in November in Egypt and tried, once more, to set an urgent tone. The latest declarations from UN Secretary-General Antonio Guterres that, due to the lack of progress so far, the world is speeding down a “highway to hell with our foot on the accelerator.” Guterres told delegates, “Humanity has a choice, cooperate or perish.“. There are currently several factors derailing the transition to clean energy, such as deteriorating diplomatic ties between top emitters (US and China), rampant inflation, and tight energy supplies.
The US is likely to see a renewable energy boom in the wake of historic climate bills, with solar and wind projects to expand in size and the capacity to double by the end of the decade. The passage of this year’s legislation, known as the Inflation Reduction Act (IRA), will support the US towards the leadership of a clean energy economy. The tax credits contained in the bills of $370bn of climate spending should help double the capacity of installed wind and solar by 2030, according to an updated analysis by the research firm Energy Innovation.
Worst Performing Industries of 2022
Internet Services and Social Media
The “Big Five,” also known by the acronym “FAANG,” stands for Facebook (recently rebranded Meta), Apple, Amazon, Netflix, and Google (Alphabet). These five companies combined account for 15% of the S&P 500 and about 30% of the Nasdaq 100 Index. Replacing Netflix with Microsoft bumps those percentages up to 21% and 40%, respectively.
In 2022, these five companies faced unprecedented declines.
Similarly, Netflix is currently at -56% YTD. Its streaming platform stock price plummeted when reports of users fleeing the platform came out in early May. Two factors mainly drive users’ unsubscriptions. First, raising prices in markets like the US and UK, where 25% of surveyed subscribers reported they were planning to leave the service in 2022, pushed some clients away. The other major factor users left is that Disney, Apple, and Amazon are producing top-quality original shows and beefing up their catalogs. For the average viewer, it’s all about the content, and choosing between the big three streaming services is way more difficult than it used to be.
Amazon stock is also down -47% YTD. The e-commerce giants’ stock value drops as recession fears mount. As a result, Amazon Web Services, AWS, the cloud computing subsidiary of Amazon, is asking managers to terminate underperforming workers on teams that have grown too fast and will extend a hiring freeze across the organization into the first quarter of 2023 as the business seeks to keep costs in check amid slowing growth.
Alphabet’s (Google’s parent company) stock performance is -33% YTD. Their revenue growth is slowing, and profits aren’t improving. In Q3 2022, Alphabet’s total revenue grew 6% YoY while total expenses (COGS+OPEX) increased 18% YoY. This is because overall macroeconomic headwinds are causing advertiser demand to dissipate. Though Google remains a highly profitable business with a monopoly in search advertising, markets are unlikely to be comfortable with margin contraction. For example, billions in losses attributed to Google’s other bets, such as Waymo, their attempt to enter public transportation with autonomous vehicles.
Apple, with -23% YTD stock price performance, is the tech giant holding the line. However, they are facing major challenges in China mainly due to their prolonged lockdowns and semiconductors shortage.
Electric Vehicles Industry
The Electric Vehicles Industry was heavily impacted in 2022. According to the iShares Electric Vehicles and Driving Technology’s UCITS ETF, which tracks investment results of developed and emerging companies in electric vehicles and driving technologies, the sector is currently lagging. For example, this particular fund is down -24% YTD,
What’s attributing to the sector’s current tailspin? Some experts suggest that car sales are declining due to shifting consumer behavior patterns and record prices for new cars. According to JP Morgan analysts, these record prices are set to remain elevated through the end of 2022. In 2023, prices will decline by 2.5% to 5% for new cars and 10% to 20% for used cars.
Electric vehicles have been especially affected by rising material costs, as the prices of critical metals, including lithium, nickel, and cobalt — essential components of electric car batteries — have spiked. However, the electric car market will grow despite these overall adverse conditions. In July 2022, the American Automobile Association (AAA) posted its latest survey results, indicating that one-quarter of Americans would likely opt for a fully electric vehicle for their next automobile purchase. In addition, Tesla’s -55% YTD performance might be temporary and set for a comeback since the company sold 343,830 electric vehicles worldwide in the third quarter, a record 42 percent increase from the 241,391 vehicles it sold in the third quarter of 2021.
What Industries Might See Sustained Growth in 2023?
So, what comes next after a blistering 2022?
Despite the current economic and geopolitical tensions worldwide, many industries are demonstrating promise.
Here are three industries we anticipate to see significant growth in 2023:
When labor is scarce, competition is fierce. As a result, continuous education will become the primary growth driver for successful economies and individuals, especially when jobs are not abundant, layoffs are frequent, and there is a high percentage of unemployment and a soaring cost of living. Advancements in technology and changing student and industry expectations are the key industry trends propelling the education market’s growth.
The global higher education market is expected to grow at a CAGR of 19.6% from 2023-2028, according to the latest report by Expert Market Research. In this context, higher-educational institutions include universities, colleges, and professional schools that prepare for domains such as law, theology, medicine, business, music, and art.
Healthcare will continue to surge because demographic trends indicate that populations in developed countries continue getting older while younger people will be more abundant in emerging economies. As a result, the population will age at a higher rate during upcoming years, and expenditures in healthcare will increase. For example, in the U.S., national health spending is projected to grow at an average annual rate of 5.4% from 2019-2028 and reach $6.2 trillion by 2028.
The following graph illustrates that Africa and Asia will be the two major regions contributing to the world’s growing population, reaching 10 billion people by 2050.
Process Mining Software Industry
This industry is ready to win. Process mining software is a type of programming that analyzes data in enterprise application event logs to learn how business processes are working. Process mining software aims to identify bottlenecks and other areas of inefficiency so they can be improved. The global process mining software market is projected to grow from $933.1 million in 2022 to $15.5 billion by 2029 at a CAGR of 49.5% in the forecast period. The implementation of AI is the key factor driving the market, with North America expected to grow at the highest CAGR.
Looking Toward 2023 and Beyond
For many industries, 2022 highlighted the vulnerabilities of some of the world’s biggest companies. Yet, although some companies will falter, and others will disappear, moments of uncertainty are opportunities for well-positioned companies to make gains where others lost ground. President JFK once inspired this quote: “The Chinese use two brush strokes to write the word, ‘crisis.’ One brush stroke stands for danger: the other for opportunity.” In 2023, the best performers will overcome crises by minimizing dangers and focusing on opportunities.