The global stock market is a deceptively unpredictable and volatile financial entity, and one that’s endured a particularly difficult time since the beginning of 2022.
Even during periods of growth and improved sentiment, there’s no such thing as a foolproof equity investment. Even big tech stocks have slumped through Q1 against a backdrop of disappointing earnings, for example, while the previously upbeat electric vehicle (EV) sector has also stagnated during the first three months of 2022.
Declining retail sales have also impacted negatively on an enduringly popular market segment, which currently accounts for around 5% of the total UK economy.
However, the stock market remains a vast and diverse entity, and there are always numerous opportunities to leverage individual sector growth and make profitable trades. With this in mind, here are three sectors that investors shouldn’t ignore in 2022.
#1. Power and Energy Stocks
Unsurprisingly, the best performing stocks through 2022 so far have sat within the energy sector, which has continued to boom on the back of soaring gas and electricity prices and the increasingly valuable nature of raw commodities like oil.
Last October saw the energy price cap increase in the UK, in direct response to rising costs of gas and electricity around the world. On April 1st, the energy price cap rose by a further 54% as this trend continued, while further hikes are being forecast for the beginning of October.
When energy prices soar, of course, it’s the major energy corporations and service providers that reap the rewards, as their profits increase exponentially and the dividends paid to shareholders become increasingly lucrative.
In the near and medium-term through 2022, there’s no doubt that conventional gas, oil and energy service stocks offer significant value. However, you should also consider prioritising equities that are also heavily invested in energy transition, which are also enjoying marked and consistent growth and are set to account for nearly 95% of the increase in global power capacity through 2026.
Take Chevron, for example, which is a key driver of energy transition technology and also has an interest in various power applications. Its share price has also increased noticeably during the first quarter, from $117.35 on January 1st to $172.53 at the start of trading on April 20th.
Still, Chevron and similar stocks remain relatively affordable, creating the potential for steady profits through 2022 and beyond.
#2. Financials
Traders will have noticed the impact of inflation on the stock market of late, as it continues to weigh heavily on consumer purchasing power, sentiment and company earnings.
This situation is likely to get worse before it improves, however, with inflation in the UK having peaked at 7% in March. During the previous month, it had reached a 30-year high of 6.2%, while this trend is expected to continue through Q2 at least.
However, we’re now seeing the Bank of England (BoE) and similar central banks across the globe move to quash inflation, primarily by raising interest rates. In fact, the BoE has issued three base rate hikes in the four months between December 2021 and March, from a starting point of 0.1% to 0.75%.
In addition to dragging inflation back towards the central bank’s target of 2% over time, this will also raise the immediate cost of borrowing and see banks (and wider financial services firms) benefit from increased profit margins. What’s more, the second half of 2022 could well see the green shoots of economic improvement emerge, further bolstering the share price of banks and commercial lenders.
Regional banks are likely to benefit more from institutions like JP Morgan Chase, but it’s highly likely that the financial sector as a whole will experience steady and incremental growth as the year continues.
#3. Semiconductors
Prior to 2020, semiconductor companies comprised a fast-growth investment sector, against a backdrop of rising demand across a broad range of industries.
The automotive trade was central to this trend, as despite accounting for just 8% of total semiconductor demand in 2021, it’s likely to claim a share of up to 15% by the end of the decade as the technology continues to evolve.
Of course, the market took a huge hit in 2020, as global supply shortages created widespread bottlenecks and impacted negatively on the production of everything from cars and PCs to smartphones.
However, this also created a broad range of undervalued stocks, which retained the potential to rebound significantly and form a bull market in time 2022 (especially as semiconductor stocks tend to be cyclical in nature at the best of times).
According to McKinsey, the semiconductor market showcased robust growth of 20% to $600 billion last year, while the suggestion of aggregate annual growth of around 8% between now and 2030 could create a trillion dollar industry by the end of the decade.
This is largely thanks to the easing of global supply chain issues, alongside increased demand and our growing reliance on semiconductors and the technology that they power.
What’s more, semiconductor stocks appear to have avoided the depreciation experienced by big tech assets through 2022 so far, creating a broad and diverse sector that investors should embrace sooner rather than later.
