Coming off several years of outsized gains in the stock market, investors may be hoping 2022 is like deja vu again.

Don’t count on it. While future performance is impossible to predict with certainty, many financial advisors expect returns will come back down to Earth.

“We have been telling clients to expect a lackluster year in the stock market and in portfolios in general, with lingering elevated inflation, slower economic growth and interest rate hikes,” said certified financial planner Shon Anderson, president and chief wealth strategist for Anderson Financial Strategies in Dayton, Ohio.

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So far this year, the S&P 500 Index — a broad measure of how U.S. companies are faring — has posted a total return (price gains plus dividends) of about 29.2%. That’s on the heels of 18.4% in 2020 and roughly 31.5% in 2019 (and a loss of more than 4% in 2018). Over time, the annual average is about 10%.

The Dow Jones Industrial Average has a total return so far this year of 21.1%, following 9.72% in 2020 and roughly 25.3% in 2019 (and a loss of 5.6% in 2018). The tech-laden Nasdaq Composite index, meanwhile, has posted a 23.2% gain so far this year, after 44.9% in 2020 and about 36.7% in 2019 (and a loss of 2.84% in 2018).

While 2022 may end with lower returns — i.e., single-digit gains, perhaps — the economy is expected to continue to expand, albeit at a slower pace than earlier in the year. In the third quarter, gross domestic product — which measures all economic activity — grew at an annual pace of 2.3%, according to the Bureau of Labor Statistics. That came on the heels of 6.5% annual growth in the second quarter, and 6.4% in the first quarter.

With that slower growth as a backdrop, coupled with persisting inflation and the Federal Reserve’s latest expectations that interest rate hikes are on their way next year, there may be certain industries or market sectors that outperform others. 

“The environment is right for being more cautious and defensive … but there are still opportunities to make money,” said CFP Matthew McKay, an investment analyst with Briaud Financial Advisors in College Station, Texas.

“Typically this is an environment where utilities, health care and consumer staples can outperform, generally speaking,” McKay said.

International stocks — in  both developed markets and emerging markets — also may outperform, he said.

“Looking at the second half of the year, many countries should turn up growth year over year, which would be quite positive for these two broad markets, especially given the reasonable multiples they are priced at,” McKay said.

Real estate investment trusts could also do better than the broader market, Anderson said. REITs, as they’re called, are companies that own and/or operate properties such as office buildings, shopping malls, apartment complexes and warehouses. 

“Specifically for REITs, we think there is more opportunity in the data centers, self-storage and health-care [facilities],” Anderson said. 

Stocks related to residential building may also be a spot of strength, said Joseph Veranth, chief investment officer and portfolio manager at Dana Investment Advisors in Waukesha, Wisconsin. 

“There is still huge pent-up demand for housing,” Veranth said. Among his favorite picks are homebuilder D.R. Horton and Fortune Brands Home & Security, whose products include those related to plumbing, cabinetry, outdoors and home security.

Industrial stocks may also benefit from a strong economy and from more being spent on infrastructure or defense, said CFP Barry Glassman, founder and president of Glassman Wealth Services in Vienna, Virginia. Generally, companies in that sector manufacture and distribute goods used by industries such as construction, engineering, aerospace and defense, or they may be involved in transportation and logistics services.

Additionally, Glassman said, his firm is focusing on total shareholder return — that is, looking at stocks with consistent dividend payouts, as well as stock buybacks. The latter generally causes a company’s share price to rise because fewer shares are on the market once the buyback happens.

“I can’t imagine the S&P continuing its impressive three-year run but even if the index doesn’t do as well, I think there are stocks that could do better,” Glassman said. “I think what will rule is profitability and stability of earnings.”