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.
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..
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.
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.”
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
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.
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.
Kourkafas expects moderate single-digit returns from U.S. stocks in 2022, along with increased volatility.
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.
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.
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.
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
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.
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.
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
Link expects the S&P 500 to gain 5% in 2022.
Link sees pent-up demand driving economic growth of 4% in 2022.
Link expects rent and wage increases to continue to push up inflation in 2022.
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
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.
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.”