Market Outlook 2022
I’ve seen a few of these and decided to join the fun. I want to make some 2022 market predictions so I can look back at the end of the year and see how wrong I was!
Predictions
This section should be called “Guesses” because nobody knows what the market is going to do. Here are my guesses:
S&P 500: +3% in 2022
The market generally increases over time, which inclines me to believe it will go up in 2022. That’s it, that’s my rationale. I could give you a million reasons to be bearish. Tapering and the hawkish Fed, the market ending 2021 near all-time highs, COVID, tech stocks trading at 50x price-to-sales multiples, America being America, et cetera. For these reasons and others I am cautious, which is why I settled on a 3% increase.
I read a blog yesterday about forecasting and this section stood out:
“The New York Fed’s monthly Survey of Consumer Expectations reports the public’s expectation as to whether the stock market will be higher in 12 months’ time. Since the survey began in June 2013, the S&P 500 has returned roughly 15.5 percent per year. Over the same period, there has been only one instance where survey found consumers expecting the stock market to be higher in 12 months. That means consumers are wrong – wildly wrong – about where stocks were headed essentially all the time.”
The inherent bearishness of some people causes them to miss out on a market that goes up roughly 70% of the time. There are always reasons to be bearish, but macro headwinds have always been and will always be present, and the market goes up despite them. Don’t mistake my optimism as encouragement to buy tech. My point is that being bullish over the long term is what has worked for the last few hundred years and that trend is not reversing now.
Growth vs. Value
Value investors have been calling for the revival of value stocks for as long as I’ve been on FinTwit. But this is finally our year. Growth had its decade, now it’s time for companies with earnings to have their time in the spotlight. I’m bullish commodities and energy. Apple hit $3 trillion in market cap on the first trading day 2022. Imagine investing in a company that needs to hit a $6 trillion market cap in order for you to double your investment (yes, I know dividends and buybacks exist)? It could be 10-20 years before any company gets that large. I happily own commodities such as uranium instead.
The Fed and Inflation
I think inflation is here to stay and the Fed might be too late to stop it. The labor shortage isn’t slowing and these types of things always take longer to play out than you think. Blink once and it will be December 2022 and we’ll still have Help Wanted signs everywhere. Anecdotally, not a single business owner or manager I know isn’t understaffed. We’re in a situation where employees have all the power. Every company that mandates their employees to return to the office gets laughed at and the employees go elsewhere. Finding a job has never been easier and wages are shooting up. This type of inflation is extremely sticky. The Fed can raise rates all they want but it’s not going to be enough to stop the inflation train.
Bonus Prediction: Covid
This is the year Covid becomes endemic. I’m even less qualified to talk about viruses than I am the stock market but you’re getting both today. The Omicron variant was only a cold for many people and the severity of symptoms is diminishing with each wave. It’s ripping through the population. I know at least 20-30 people who have it right now and the holiday surge isn’t over. We’ll hopefully reach herd immunity and Covid will be something we treat like the seasonal flu.
Not investment advice.