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
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
“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
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.
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.
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.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
