At just 21 months old, the bull market that started in March 2020 has already seen the S&P 500 gain more than 114%. This implies it has already exceeded the surge that lasted almost four times as long from 2002 to 2007.
Following a year like 2021, when the S&P 500 increased by more than 27%, it may be easy to think the trend will continue in 2022. However, forecasting the stock market is usually difficult, and 2022 is no different. https://oakparkfinancial.com/payday-loans-no-credit-check/
“There are so many distinct concerns right now, including the virus,” says Liz Ann Sonders, managing director and chief investment strategist at Charles Schwab.
There may also be an element of dj vu as the United States struggles to contain an increasing number of Covid-19 cases and fatalities. Compared to the previous year, the economy is more stable. Federal Reserve officials are confident enough to telegraph their intention to increase interest rates and conclude the Fed’s quantitative easing (QE) program, refocusing their efforts on inflation.
According to Sonders, investors may anticipate the Fed as one of the “primary drivers” determining the market’s direction in 2022. However, the central bank’s policy changes must be considered in the context of broader market moodand a shift in sentiment, she says, is the market’s greatest danger.
While the S&P 500 is on track to end 2021 near (or maybe at) an all-time high, individual companies have not fared as well 93 percent of the index’s members witnessed a selloff of more than 10% in 2021. “This idea of market resilience exists solely at the index level,” Sonders explains. “There are considerable areas of vulnerability.”
The vital issue coming into 2022 is whether any catalystpandemic-related, economic slowing, the Fed’s policy reversal, or something elsewill eventually trigger a more significant stock market selloff than in 2021. What to expect in 2022
Analysts Predict Moderate Market Growth in 2022 and Increased Volatility
Wall Street strategists have been attempting to make sense of what 2022 will bring, and their projections are somewhat varied.
Morgan Stanley’s year-end 2022 goal for the S&P 500 is 4,400, a decrease of about 9% from the present levels. On the other hand, Wells Fargo believes the index might reach 5,300, implying another year of significant increases.
Individual stock analysts have a similar bullish view. According to FactSet data, when their 2022 price estimates for all S&P 500 firms are combined, they envision the index ending at 5,225 in 2022.
According to Terry Sandven, U.S. Bank’s chief equities strategist, the S&P 500 index will reach 5,060 in 2022, indicating a “glass half full” picture based on continued robust corporate sales and profit growth, moderate inflation, and low-interest rates. These considerations imply a positive environment for equities, with the possibility of “more moderate” rises of approximately 8% from mid-December levels.
As with Sonders, Sandven believes that projecting for 2022 will be more difficult than in previous yearsparticularly after a high year of success. “To some extent, the market is perfectly priced with a minimal margin of error,” he explains.
Investors might anticipate more speculation about a market downturn next year with this background in mind. Since the early 2020 bad market, the S&P 500 has not seen a genuine correction. Since 1928, a decrease of 10% to 20% has happened about once every 19 months.
To that end, Sandven notes that the latest episode of volatility may persist. In late November, the S&P 500 ended a 29-day streak in which it failed to move more than 1% up or down and then tallied nine such swings in 15 days.
While Charles Schwab does not estimate an S&P 500 price goal for 2022, Sonders sees the possibility for a “strong” year but with a reasonable chance of decline as market players adjust to Fed policy changes. Market volatility may peak early in the year, providing a stronger foundation for the market to build on in the second half.
In 2022, Federal Reserve Policy, Inflation, and Taxes
Market projections for 2022 boil down to anticipating the pandemic’s sustained effect, especially in light of the late 2021 rise in cases and uncertainties around the new omicron variety. It can aggravate inflation by causing more supply chain disruptions, affecting global demand.
“The economy’s direction continues to be determined by the virus’s evolution,” the Federal Open Market Committee’s (FOMC) statement said after the December Fed meeting. Policymakers hastened the reduction of their bond-buying program, citing inflation that has surpassed the central bank’s 2% objective for an extended time.
According to Sonders, the Fed’s rate increases will be critical, but the number of rate hikes will be secondary to the overall policy shift. “The entire economy merits something more than distress-level interest rates,” Sandven said.
Investors will also be focused on the Build Back Better Act’s future tax revisions, which would target rich people and companies. According to Sandven, because corporate profits are a significant factor in market performance, every change in corporation tax rates can affect earnings expectations.
Making Sense of a Stock Market
Despite some volatility under the S&P 500’s surface, 2021 will conclude with all 11 market sectors positive for the year. “The performance report card for 2021 is flawless and indicative of a still-strong economy,” Sandven said.
What does this indicate for investors as we approach the year 2022? Technology, the S&P 500’s most significant sector, will continue to be critical. Sandven claims it is one of the U.S. Bank’s top favorites and consumer discretionary and healthcare firms. Meanwhile, Charles Schwab advises investors to concentrate on quality firms and avoid sector rotation in their portfolios, Sonders says.
Small- and mid-cap stocks may also catch up in the next year after falling behind their large-cap counterparts in 2021. The Russell 2000, which focuses on small and mid-cap companies, is expected to gain approximately 14% this year, roughly half the increase projected by the S&P 500. “We’d like to see that margin close somewhat,” Sandven adds. “We believe that several of these firms will do well next year.”
Even yet, much of 2022’s future success is contingent on factors that no one can foresee precisely at the moment. Inflation is critical in determining if Sandven’s “glass half full” attitude changesspecifically, whether present trends are sustainable and whether inflation proves to be a non-event or is running hot, he argues.
“By the middle of the year, we should know the amount of inflation, which will set the tone for the second half of the year,” he adds.