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The stock market for 2022: What’s the chatter?

Alpesh Patel OBE

After an eventful 2021, it’s time to look towards 2022. What are some of the talking heads, banks, hedge funds, and analysts expecting in 2022 for the stock market? Alpesh Patel OBE shares his thoughts with Business Leader.

IPOs

2021 was an excellent year for IPOs. Not since the dot-com boom has the number of IPOs and capital raised hit these levels. However, market disruption may slow down these record gains.

SPAC listings also enjoyed an excellent 2021; however, inflation, Omnicron, tightening monetary policy, and supply chain disruption are all causing some hesitancy in the market. Some attractive IPOs and SPACs for 2022 are Reddit, eToro, Brewdog, TikTok, and Instacart.

Equities

Despite a few pullbacks here and there, the S&P 500 had an excellent year. However, some analysts suggest the bull run could come to an end in 2022. Morgan Stanley’s Andrew Sheets feels the index could drop by 5% but recommends Japanese and European stocks as areas with 12% and 8% growth potential, respectively.

Jeffrey Kleintop at Charles Schwab also predicts modest gains and heightened volatility in the S&P 500. Lauren Goodwin of New York Life Investments echoes this sentiment, noting that as fiscal stimulus drops, market gains will too.

Several other areas will affect the equities markets in 2020.  According to FT Money, climate change, troubles in China and Ukraine, alongside monetary policy and COVID-19, are some of the prominent factors to consider.

Despite this, most major US banks are bullish about the S&P 500. BMO, Wells Fargo, Goldman Sachs, RBC, and Jp Morgan all forecast the index to finish 2022 above 5,000 points.

Tom Yeung, the author of the popular newsletter Moonshot Investor, has three big predictions for the new year. Firstly, favorable legislation could lead marijuana stocks to rise. Secondly, he likes Crypto.com and POSaBIT as fintech companies. Finally, he believes 2022 will be a big year for various healthcare stocks, although he stopped short of revealing which specifically.

Stock Picking

Modest overall gains in the S&P 500 mean that the art of stock picking will become necessary. Nigel Bolton at BlackRock suggests that better-prepared companies with a diverse supply chain will thrive even with broader supply chain issues. Additionally, he adds that larger Oil companies have strong potential in 2022.

Growth Stocks

Nicholas Rossolillo at Motley Fool is high on growth stocks in 2022. He believes that after a first-quarter correction, they are set to outperform other sectors.

Savita Subramanian, at Bank of America, has characterized tech stocks as being like a “long-duration bond,” where investors are paying a big price today for expected returns in the future. Of course, this characteristic makes them just as vulnerable to rising interest rates as bonds.

World Economies

Vanguard’s 2022 Economic and Market Outlook, the investment advisor expects slow growth for world economies. They suggest the US and Europe will grow at a pace of 4%, with the UK at around 5.5% and China dropping to about 5%.

The Fed

Fears of an upcoming Fed interest rate hike could hit Tech stocks hard. Micheal Hartnet of Bank of America suggests that the “speculative forth” bubble of the FAANGs and other Tech stock could be set to burst and recommends investors rotate out of these high-performing equities.

COVID-19 Variants

COVID-19 recovery was a key theme of 2021, and that should continue. However, new variants could put a spanner in the works. Moderna CEO Stéphane Bancel warns that current vaccines will struggle to contain Omicron.

However, Jim Reid at Deutsche Bank cited a poll that suggests that only 10% of investors see new variants as the biggest market risk factor in 2022.

Inflation

There’s not much consensus on inflation; however, many analysts expect it to slow down by mid-2022. Michelle Meyer of Bank of America expects it to remain above target, forcing the Fed into action. Mayer expects three interest rate hikes throughout 2022.

Investing.com’s Brad McMillian agrees, noting that tightened economic policy will hit anything that requires borrowing hard. However, he notes that this will help growth in the long term and won’t slow economic recovery as much as it will stall equities.

Summary

Forecasts for 2022 are all over the map. Market predictions have to contend with expected value and the arbitrary nature of a calendar when making calls on the future of the S&P 500. As a result, different models vary widely. Morgan Stanley predicts the S&P 500 to be as low as 4,400 next year, with BMO far more bullish at 5,300.

Investors should watch the Fed’s monetary policy and complications from new corona variants.

For me, I’m bullish and excited. If my pension did as well every year as it did in 2021, I’d be retired a few times over!

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