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Bulls, Bears And Buffaloes: What Investment Strategists Are Telling Advisors And Investors To Expect In 2022 – Forbes

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As 2022 approaches, markets continue to be powered by strong earnings growth as advisors and investors price in inflation and expected interest rate hikes from the Federal Reserve. Forbes spoke with several investment strategists about what to expect from 2022.

Chris Hyzy, Chief Investment Officer, Bank of America

BAC
Merrill Lynch

Prediction:

Hyzy and his colleagues at Bank of America are characterizing 2022 as a “new dawn” for markets. He is expecting a “boring” total return of 7% to 10% after years of double digit returns.

Allocations:

U.S. equities remain the most attractive to Hyzy, with his firm overweight domestic versus international on the back of a strong dollar while also seeing value from economic growth in Europe and Japan. Merrill recently upgraded small cap stocks because of capital expenditure and an expectation for a “catch up cycle” relative to large caps and he is bullish on cyclicals, including financials, energy, materials and industrials..

Tech Stocks:

Hyzy is still bullish on growth stocks, specifically mega cap technology firms, a sector investors see as safe. With abundant free cash flow generation and strong earnings growth, he expects tech titans to grow at least commensurate with the market despite premium valuations.

Buffalo Market:

Eschewing the traditional dichotomy of bull and bear, Hyzy instead opted for the term “buffalo market.”

“We last used this term in 2012, it is in the bull family. A buffalo market is just a less attractive bull that gets tired more easily and roams quite a bit but ultimately moves forward in the prairie.”

Bearish Views:

Despite his overwhelmingly bullish sentiment, Hyzy sees some trouble for low profit companies as higher interest rates cause pressure on margins. He expects a knee jerk sell off from markets when rate hikes come to fruition, adding that his firm would be buyers in any equity drawdown.

Angelo Kourkafas, Investment Strategist, Edward Jones

Prediction:

Kourkafas is expecting value stocks and cyclicals to be the main beneficiaries of above-trend economic growth in 2022, especially in the first half of the year.

He is projecting the S&P 500 to end 2022 at around 5,000, 4.9% above Dec. 31’s close.

GDP Growth: 

Kourkafas sees strong consumer balances and a shift of demand from goods to services as a tonic for the economy. He is estimating GDP growth between 3% and 4% in 2022.. He also predicts larger capital expenditure spending and inventory rebuilding to support outsize growth.

Investment Returns:

Kourkafas expects moderate single-digit returns from U.S. stocks in 2022, along with increased volatility.

Stock Picks:

Sector wise, he is bullish on consumer staples, utilities and health care. He also likes emerging market equities and international small and midcap stocks, which will benefit from growth in China next year.

Memestocks and Crypto:

With a less accommodative Fed, Kourkafas sees less air for speculative bubbles, including memestocks and cryptocurrencies, citing recent declines in AMC, GameStop

GME
and Bitcoin. 

“Investors should be mindful of portfolio diversification because what has worked this year is not likely to continue working into next year, especially when it comes to the narrow bets that we have seen some investors take.”

Larry Adam, Chief Investment Officer, Raymond James

RJF

Prediction: 

Adam sees economic momentum from recent fiscal stimulus and expects growth of 3.5% for 2022, powered by consumer demand, capital expenditures by business, and inventory rebuilding.

Raymond James has a target price of 5,050 for the S&P 500 to close next year, 6% above the Dec. 31 close.

Inflation: 

Adam calls inflation a “gift to markets,” bringing with it higher corporate earnings and wage growth. He also says inflation fears helped doom President Biden’s Build Back Better plan and the punitive tax hikes that would have come with it. 

Policymakers:

Adam expects Democrats to lose control of the House of Representatives, leading to gridlock in Congress that will allow a strong market to roll on undisturbed by politics.

Tech Stocks:

Adam is still bullish on large tech stocks, despite expensive valuations and because of their diversified business lines. He also is bullish on cyclicals, including consumer discretionary, financial and industrials.

Darrell Cronk, Chief Investment Officer, Wells Fargo

WFC

Prediction: 

Earnings growth from U.S. companies should help drive the S&P 500 higher by more than 10% in 2022 even if already stretched price-earnings multiples don’t get any loftier. Cronk expects a “super bull market for commodities,” especially energy, industrials, agriculture, soft commodities and precious metals.

Wells Fargo is projecting the S&P 500 to end 2022 at around 5200 points, 9.1% above Dec. 31’s close.

Fed action: 

Cronk doesn’t expect the Fed to be as aggressive as Wall Street is expecting. After tapering ends in March, he expects only one or two rate hikes, rather than the three suggested by Federal Reserve Chairman Jerome Powell.

Inflation:

With producer prices jumping at more than a 9% annual rate in November, and consumer prices  rising nearly 7%, Cronk sees inflation peaking in the first half of 2022, as pressure on producers shifts to consumers. 

What he is watching:

Cronk focuses on  credit spreads, the yield curve, corporate margins, and the U.S. dollar to inform his economic outlook. 

Stephanie Link, Chief Investment Strategist, Hightower

Prediction: 

Link expects the S&P 500 to gain 5% in 2022.

Projected Growth

Link sees pent-up demand driving economic growth of 4% in 2022.

Inflation:

Link expects rent and wage increases to continue to push up inflation in 2022.

Investment Strategy:

Link recommends investing in a blend of cyclical and growth stocks. She expects financials, industrials, materials, consumer discretionary and energy to benefit from both GDP growth and inflation.

Denise Chisolm, Director of Quantitative Market Strategy, Fidelity Investments

Prediction:

Chisolm sees more upside to the market and expects the bull market to climb a “wall of worry” in 2022.

Chisholm is projecting an above average year for returns and a strong year for equities.

Inflation:.

Chisolm expects a deceleration in inflation over the next 12 months.

Don’t Fear The Fed

“There’s a lot of concern in the market that the Federal Reserve will hike interest rates and that’s going to be a problem for the overall stock market or for the overall economy. What you see when you look back through history is that that’s not often the case.”

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Toronto index set for biggest weekly drop since early December

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Canada’s main stock index fell on Friday as weaker crude oil prices weighed on energy stocks, putting the benchmark index on course for its biggest weekly drop since early December.

At 9:35 a.m. ET (14:35 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 141.11 points, or 0.67%, at 20,917.07. It hit a more than two-week low in the previous session.

The index has lost 2.4% so far this week, hurt by higher bond yields as expectations build that central banks will hike interest rates over the coming months to tame unruly inflation.

The healthcare and technology sectors have dominated the weekly losses, dropping 7.4% and 4.5%, respectively.

On Friday, the energy sector led the declines with a fall of 1.9% as an unexpected rise in U.S. crude and fuel inventories profit-booking pressured crude oil prices.[O/R]

The financials sector slipped 0.8%, while the industrials sector fell 0.5%.

The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.4% on weaker copper prices. [MET/L]

On the economic front, data showed Canadian retail sales rose 0.7% to C$58.08 billion ($46.40 billion) in November on higher sales at gasoline stations, and building materials and gardening equipment and supplies dealers.

“Canadian retail sales for November grew less than expected, while new house price inflation plateaued at a high level, another sign of stagflation in the North American economy,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

HIGHLIGHTS

The TSX posted one new 52-week highs and 10 new lows.

Across all Canadian issues there were two new 52-week highs and 55 new lows, with total volume of 32.05 million shares.

 

(Reporting by Amal S in Bengaluru; Editing by Aditya Soni)

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CAPP expects oil and gas investment to rise 22 per cent this year to $32.8 billion – Energeticcity.ca

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But CAPP president Tim McMillan pointed out that in spite of the fact that oil prices are at seven-year highs and companies are recording record cash flows, capital investment remains well below what it was during the industry’s boom years. In 2014, for example, capital investment in the Canadian oilpatch hit an all-time record high of $81 billion, capturing 10 per cent of total global upstream natural gas and oil investment.

“Today we’re at $32 billion, and we’re only capturing about six per cent of global investment,” McMillan said. “We’ve lost ground to other oil and gas producers, which I think is problematic for a lot of reasons . . . and it leaves billions of dollars of investment that is going somewhere else, and not to Canada.”

Investment in conventional oil and natural gas is forecast at $21.2 billion in 2022, according to CAPP, while growth in oilsands investment is expected to increase 33 per cent to $11.6 billion this year.

Alberta is expected to lead all provinces in overall oil and gas capital spending, with upstream investment expected to increase 24 per cent to $24.5 billion in 2022. Over 80 per cent of the industry’s new capital spending this year will be focused in Alberta, representing an additional $4.8 billion of investment into the province compared with 2021, according to CAPP. 

While the 2022 forecast numbers are good news for the Canadian economy, McMillan said, it’s a problem that companies aren’t willing to invest in this country’s industry at the level they once did. 

He said investors have been put off by Canada’s record of cancelled pipeline projects, regulatory hurdles and negative government policy signals, and many now see Canada as a “difficult place to invest.”

However, Rory Johnston, managing director and market economist at Toronto-based Price Street Inc., said laying the decline in the industry’s capital spending at the feet of the federal government is overly simplistic.

He added while current “rip-roaring, amazing” cash flows and a period of sustained high oil prices will certainly give some producers the appetite to invest this year, Johnston said, it will likely be on a project-by-project basis and certainly on a smaller scale than the major oilsands expansions of a decade ago.

“You have global macro trends across the entire industry that have begun to favour smaller, fast-cycle investment projects — and most oilsands projects are literally the polar opposite of that,” he said.

One reason capital spending isn’t likely to return to boom time levels is because companies have become much more cost-efficient after surviving a string of lean years. And that’s not a bad thing, Johnston said.

“The decade of capex boom out west was tremendously beneficial for Canada and Albertans, but it also caused tremendous cost inflation,” he said.

“While what we’re seeing right now is not as construction-heavy and not as employment-heavy —and those are two very, very large downsides — the upside is that you’re much more competitive in a much more competitive oil market,” Johnston said.

In a report released this week, the International Energy Agency (IEA) hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day. 

According to the IEA, global oil demand will exceed pre-pandemic levels this year due to growing COVID-19 immunization rates and the fact that the new Omicron variant hasn’t proved severe enough to force a return to strict lockdown measures.

This report by The Canadian Press was first published Jan. 20, 2022.

Amanda Stephenson, The Canadian Press

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Cash-flow investing isn't just a strategy for your grandparents – Financial Post

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Cash-flow investing is increasingly attractive during times of increased market volatility

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The outlook on the Omnicron variant of COVID-19 on global markets is changing by the minute, but I am reminded of a tried-and-true approach that can provide investors with some peace of mind during uncertain market conditions: focusing on the value quality that cash flow adds as opposed to movements in the asset price.

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Cash-flow investing, in basic terms, means purchasing an asset that provides income at regular intervals versus one solely based on price appreciation. Whether it is monthly, quarterly, semi-annual, etc., you will receive regular cash distributions that can be reinvested or used to finance your lifestyle.

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Considered a relatively conservative approach to investing, acquiring cash-flow-producing assets can be attractive for a number of reasons.

First, the asset will provide value on a regular basis regardless of its current market price. A temporary drop in value can be viewed as positive for cash-flow investors because they can now use the distribution amount to buy more of the asset at a distressed price, hence increasing their future cash-flow amount.

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Secondly, dividends or proceeds from cash-flow investments can be used to fund lifestyle expenses in retirement without eating into your overall pot of capital.

This shift in focus from market price to value can help diversify investment portfolios and mitigate the impact of public market uncertainty. Ultimately, cash-flow investments provide flexibility to rebalance, protection against market volatility, and peace of mind that you’re earning sustainable income with less concern about the economic impact of current events.

For example, in February 2020, we switched our monthly cash-flow-producing assets from reinvest to pay out for many clients when public equity markets sharply reacted to COVID-19 uncertainty. This free cash flow allowed us to purchase dividend-paying equities at a large discount for the ensuing six months until they reached their pre-pandemic valuations.

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Dividend-paying equities are just one of several types of cash-flow investments.

Real estate : Cash flow is the result of proceeds from rent collected. The value of the property will likely appreciate over the long term, but the cash flow produced monthly or annually is relatively consistent. The goal here is for the income from the property to cover all your costs on the property and provide a steady profit.

Investing in a real estate fund can be an excellent source of passive income and provide steady long-term returns. Real estate funds can have a similar return to individual property ownership without the added stress of personally maintaining the property.

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Mortgage funds : Cash flow comes from regular loan interest repayments over the term of the loan. Loans are often secured by real property with a varying loan-to-value ratio.

Private assets : Assets such as private debt offer higher-yielding returns with significantly lower volatility than publicly traded securities. By their nature, private assets are not subject to the same whims of the crowd that the public markets are.

Dividend-paying stocks : Arguably the most volatile cash-flow-producing investment available to the average retail investor. The income from dividend-paying stocks can be less consistent than other cash-flow-generating assets. Also, your investment value can fluctuate depending on market events and the company’s performance. One strategy for mitigating some of the volatility is to invest in a fund focusing on long-term growth in a large number of dividend-paying stocks.

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Bonds or bond funds : Bonds, essentially the debt of companies or governments, can provide relatively low returns, but are generally viewed as safe investments depending on their rating. Again, a way to protect your bond investment and still see regular cash flow is to invest in a bond fund that provides diversification across the bond market.

As a whole, cash-flow investing helps protect investors in volatile markets while also taking advantage of temporary market troughs. This is one strategy I would recommend to all investors regardless of portfolio size. If there’s one thing I’ve learned over the past number of years, there’s never a wrong time to start.

James McCarthy, CIM, is a senior wealth associate/client relationship manager at Nicola Wealth. This article should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. All investments contain risk and may gain or lose value. Nicola Wealth is registered as a portfolio manager, exempt market dealer and investment fund manager with the required provincial securities commissions.

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