After the quickest economic recovery in history leading to historic highs, the last few months have done much to reverse investors’ fortunes.

The market has been routed, with the major indexes significantly down since the beginning of the year.

However, the fall isn’t uniform across the market. Rather, one sector is falling rapidly, while another is recovering much faster. Today, we will be discussing which sectors are recovering in 2022 the fastest and how you should be thinking about portfolio allocation.

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The S&P 500 Index, Nasdaq Composite, and Russell 3000 indices fell more than 10% from all-time highs.

While many are focused solely on the headlines, which shows the entire market falling equally, a closer look highlights that we’re also seeing a shift in investor preferences, with different sectors winning and losing.

This split in the market becomes clear by breaking apart the underlying trends of each market segment. It’s especially true in the technology-dominated Nasdaq, which has fallen more sharply than the other indexes.

In recent months, a massive shift in investor preferences has shaken up the technology sector’s recent dominance over the market.

Technology stocks have consistently been among the most overweight sectors held since the Great Recession. The sector has been underweighted for the first time since December 2008.

Many analysts are chalking this up to higher interest rates disproportionately hitting tech stocks. As tech stocks grow faster than the average company, increasing interest rates mean these names have a harder time securing capital to invest for growth.

But there is a different reason for this shift, and it requires digging a bit deeper.

As we get closer to the coronavirus becoming an endemic. Many think the word “endemic” will be the buzzword for the first half of the year.

While we agree endemic helps describe early 2022, we aren’t using the word as a pun on the pandemic.

More important than the coronavirus reaching its endgame, growth has become endemic to the market. Throughout an economic cycle, traditional growth names like technology stocks promise to compound returns for investors.

Companies across all industries are growing and improving earnings, meaning earnings growth has become endemic to the market. Without that competitive edge in tech, investors are leaving for cheaper growth.

The reason why the S&P 500 Industrials Select Sector Index (XLI) has outperformed the S&P 500 Information Technology (XLK) is that as endemic growth sets in, investors can find growth at more attractive valuation multiples in industrials.