Top 9 investment trends for 2022 – Forbes Advisor


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Think back to a year ago. Everyone was ready for a booming economic recovery and a summer of love in 2021, all made possible by Covid-19 vaccines. Some even said that the end of the pandemic was in sight.

Then the Delta and Omicron variants arrived. As 2021 draws to a close, the pandemic continues unabated, generating one mixed signal after another and significantly complicating global economic recovery.

On the stock market, on the other hand, the party lasted all year. The S&P 500 total return in 2021 was over 27% – even the dramatic inflation data couldn’t dampen the animal spirit. Not yet anyway.

But observers wonder how much longer the bull market can last – barely interrupted as it was by the shortest bear market ever at the start of 2020. There are signs that the latest call could be around the corner – tempered by other indications that investors still have money to make in 2022.
Here are the top nine investing trends to watch in the new year.

1. Markets are still driven by the Covid-19 pandemic

Which direction will the pandemic winds blow? There is hope that 2022 will be the year normalcy returns, sending travel, commercial real estate and traditional retail stocks even higher, but again, we’ve heard this story before.

Delta shattered the dream in 2021. And as the calendar turns, the emergence of Omicron offers both short-term and long-term worries. Even if this variant doesn’t produce another wave of deadly infections, what about the next variant? Mother Nature, not humans, writes the end of this story.

Primarily, investors need to realize that the post-Covid market recovery is already here, even if the pandemic is not yet over. Indeed, stock markets have likely already priced in most or all of the gains that can be expected from a fully reopened economy.

Although there are still mask mandates and air travel remains below pre-pandemic levels, many Americans have already returned to relatively normal lives, so even if the odds turn and the pandemic wears off finally extinguished in 2022, there may not be much room for the economy – or the stock market – to run.

2. Federal Reserve rate hikes likely in 2022

Stocks do well when the Federal Reserve keeps interest rates low, but the days of the Fed’s Zero Interest Rate Policy (ZIPR) are numbered. The only question investors should be asking is how many Fed interest rate hikes will take place in 2022.

The CME’s FedWatch tool predicts at least two rate hikes, depending on how traders speculate in the futures market. Meanwhile, the already planned reductions in the Fed’s monthly bond purchases – the so-called taper – mean that quantitative easing (QE) will be over by spring.

QE and the lowest rate have helped support stocks since the start of 2020. But more bad news, like even hotter inflation reports, could force the Fed to tighten monetary policy even faster. , and it will probably end badly for equities.

3. Tired of hearing about inflation? It’s gonna get worse before it gets better

It’s undeniable: American consumers (and the financial media) are obsessed with inflation. The occasional dismissal of high gas prices and supply chain-related shortages as “transitional” won’t work in 2022. The course of inflation will be an even bigger story in 2022, and if current trends don’t s ‘reverse soon, there will be turbulence in the market.

Higher interest rates and higher inflation are a recipe for a Wall Street retreat. It could, however, signal opportunities in the bond market or even bring good news to savers in the form of higher APYs.

4. Supply Chain Solutions

Check out any US port today and you’ll see piles and piles of shipping containers waiting to be unloaded or filled with cargo. This is just a hint that the supply chain challenge no longer looks like a short-term problem.

There could be some good to be had from long-term supply chain issues. Americans are questioning, for the first time in a long time, the wisdom and national security implications of buying and manufacturing nearly all of our products overseas. Its good.

But in the short term, it’s probably bad for the markets. Even if the pandemic fortunately comes to an end, there will be no eventual recovery until supply chains smooth out and fill store shelves. And the Omicron variant doesn’t make it easy to fix this problem, ensuring it will stick around in 2022.

5. Recovery, I Barely Knew You

The meteoric growth in gross domestic product (GDP) of 2021 has often been underestimated in the media. In the first half of 2021, the US economy was cooking with GDP increases of 6% quarter over quarter. It’s unsustainable — and we discovered it in the third quarter, when growth fell to 2%.

It was an early indication that the reopening dividend could have come and gone. A fourth quarter recovery is expected, but imagine if 2022 sets in with low levels of GDP growth when the Fed is really scared of inflation. This could be a perilous combination for shareholders.

6. The labor market is still unstable

The marked improvement in the labor market was a major event in 2021. In November, unemployment in the United States had fallen to 4.2% and, as expected, the tight market helped to push up the wages.

The figures, however, present an incomplete picture of the real labor market. The United States still hasn’t recouped the 22 million jobs it lost during the pandemic recession, and it’s missing millions of jobs where its pre-pandemic trajectory should have taken the job market.

So why is unemployment so low? Much of the gap can be attributed to women pushed out of the workforce as they tried to navigate childcare, as well as their overrepresentation in the hardest-hit industries during the pandemic.

Fierce competition for workers has hurt businesses with higher labor costs and staffing issues. These problems need to be resolved before the labor market can return to normal – and until then it will remain another drag on many public companies.

7. Have FANNG stocks lost their bite?

If you want a real sign that the stock market may experience a downturn in 2022, look to FAANG stocks.

It’s a Wall Street nickname for the five tech giants that have been a driving force behind the bull market for years, including Meta – formerly Facebook (FB), Amazon (AMZN), Apple (AAPL ), Netflix (NFLX) and Alphabet — parent of Google (GOOGL). Microsoft (MSFT) is sometimes replaced by Netflix, giving the acronym FAAMG.

Last year we predicted a rotation out of FAANG as the tech giants raced so far so fast in 2020. We turned out to be only partially right. Microsoft and Google gained even more in 2021 (our bad), while Facebook and Amazon’s more modest gains in 2021 actually underperformed the broader market.

In fact, according to Morningstar’s US Large-Mid Index, in 2020 FAANG stocks contributed about 25% of total market returns. This year through the end of November, FAANG shares contributed just 3% to market returns.

FAANG stocks were therefore not a bad bet in 2021, but they have come close. Some analysts say it’s inevitable that investors will look elsewhere for returns in 2022, which will further benefit names like Tesla (TSLA). Could we suggest boring consumer staples with increased dividend yields as a place to find solace as inflation creates uncertainty?

8. Where are the tokens?

The current shortage of computer chips will continue to impact stocks, and not just tech stocks. Virtually all consumer durables now contain a computer chip, so shortage is a bigger issue than laptops. Detroit’s parking lots are full of near-finished cars right now, just waiting for the few computer chips that still need to be installed.

Even an early end to the pandemic would not necessarily end this dimension of the supply chain crisis. Here’s just one example: So-called DSP chips, which convert analog signals to digital signals, needed for audio equipment ranging from podcast mixers to televisions to cell phones, are rare. The fault of a terrible fire in a Chinese factory at the end of 2020 which complicated the problems of pandemic.

Intel says the chip shortage will last until 2023. That might be a good reason to consider buying chipmaking stocks, but it might also be a better reason to worry about the stability of most other consumer discretionary names.

9. Mid-term elections

Perhaps the biggest uncertainty of 2022 concerns the midterm congressional elections. Republicans should do well, as the incumbent’s party typically loses seats mid-term. Still, the fight looks set to be hyperpartisan, which could lead to unpredictable news, instability or even violence. It’s the kind of surprise that can scare off investors.

It’s not new either. The approaching midterms often cause stocks to falter, especially when a power shift in Washington is expected. An analysis by Green Bush Financial of stock market returns in 1994, 2006 and 2010 — the last three times congressional bodies switched sides — provides a stark warning.

“During these three years when a power shift was expected, the stock market was either down or flat before the midterm elections in November,” the analysis found. However, all is not lost. Every three years the market went up after the election.


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