The Year that wasn’t vs The Year to be:
2021 had a lot of liquidity in the market coupled with Fed, Inflation, tapering and the stimulus package that expired. The liquidity led to high IPOs and various cryptocurrencies have a bullish year. Home prices increased and REITs are reported to perform better than S&P 500. The Work From Home situation led many people into towns/suburbs. With liquidity and cheap credit, people bought homes and sales continue to grow despite reaching 34 year high.
There’s quite less job participation, the rate is currently 61.8% owing to early retirement, some people still cosying themselves up and some doing side gigs thinking that would be enough. Read this quote somewhere “The pandemic has caused a mental shift in people, who have come to realize that life is too short to be stuck in a job you hate.”
Some companies suffered due to the supply chain crisis while some cruised over it, suggested including the likes of Bloomberg that Forget Finance, Supply Chain is the pandemic-era must have MBA degree. Making me ponder the Majors that I am about to select. The simple problem is the current Supply Chain focuses on cost reduction and having Just in Time inventory. With China’s dominance which led to the sudden shocks, people are rethinking the dependence and are trying to diversify.
Here’s the outlook for 2022:
The Fed accelerates the tapering process, which will conclude in March 2022, resulting in decreased levels of liquidity in the economy.
The Fed raises rates, with three more expected in 2022, bringing the Fed Funds rate to 0.75 percent to 1%. (from 0 percent to 0.25 percent currently)
Inflation is expected to persist for at least two more quarters, owing to supply chain bottlenecks.
GDP is forecasted to increase at about 3.8% p.a. for the US in 2022 and 4%+ p.a. Globally.
Well Enough Macro Talk, let’s jump straight into Equities.
S&P Heat Map - Source: Finviz
With many companies releasing the funds that they had to hold up for an unforeseen COVID wave, the operating earnings increased significantly coupled with an increased level of buyback and dividends.
Source: Yardeni Research
Due to unforeseen events, the percentage of earnings fell sharply as many companies kept the money for unforeseen circumstances. Many banks released the money during the last quarter of 2021, let’s hope the trend continues for the companies in 2022.
Energy was the top sector for the past year. Real Estate came second, as people moved to suburbs this was bound to happen. Technology did great due to Big Tech.
2022 Outlook for Equities
JP Morgan’s estimate for the S&P is 5050 that bullish owing to the fed tapering, pick companies carefully. As investors seek income sources to offset reduced capital gains, dividend equities are likely to resurface. Investors will be looking for a dependable source of income as the working population changes, with more retirees and family members remaining at home.
I read that these might be areas of interest for investors:
- Financial - Do well in times of rising rates.
- Healthcare - It is booming and you already know why
Outlook for Bonds and Equities:
Bonds are expected to be out of favour in 2022, as yields increase and bond prices fall.
A combination of labour shortages, supply chain interruptions, and weather abnormalities has pushed agro prices upward. Food inflation isn’t going away next year, and while prices may moderate slightly, they won’t fall dramatically.
The majority of analysts remain positive on energy and commodities in general. Precious metals (gold and silver), on the other hand, have a pessimistic prognosis. They underperformed in 2021, and most analysts predict that trend would continue in 2022.
IPOs were already covered in a separate thread. [Invested in an IPO? They're selling off right now - Like Crazy]
That’s all for now folks! Happy Investing!