After a sparkling year, when not even dramatic inflation data was able to dampen the animal spirits, investors are putting on a show of wariness for 2022. Analysts and economists are arguing that markets face multiple headwinds and the rip-roaring rallies powered by the re-openings of the economies are history.
The biggest uncertainty of 2022 is surging inflation and together with higher interest rates are a recipe for a Wall Street retreat. The job market is still unsettled,
the ongoing computer chip shortage will continue to impact stocks and the midterm Congressional elections is another topic that dominates. Growth will ease, returns will moderate and risks abound, according to major financial institutions across the world.
AXA Investment Managers says “the increase in inflation rates around the world is likely to be the key concern” for 2022. Bank of America is market bearish; “rates shock” in 2022 to follow “inflation shock” of 2021 and “growth shock” of 2020.
Barclays Private Bank sees 2022 being characterized by “slower economic growth, higher inflation, elevated volatility, and ultimately outperformance of equities over bonds”
Citi sees lower growth and inflation momentum globally. Fidelity says the major central banks will have to decide what to do about higher inflation, which the investment firm believes will be stickier than they currently expect.
Goldman Sachs expects less impressive returns for risky assets in line with a more mature cycle. Ned Davis Research says global economic growth will head lower. “Earnings growth will roll over. Market valuations will start to worsen. The uncertainty surrounding these changes should make for a more volatile year.”
Societe Generale sees 2022 set to be a challenging year. Wells Fargo says “central banks tighten policy, making us say goodbye to the punch bowl.”
Amundi Asset Management warns investors to start the year with a cautious, neutral allocation (also considering stretched market valuations) and try exploiting relative value opportunities across regions and segments.
HSBC Asset Management says the inflation journey looks set to be complex, with the big prints front-loaded in the year.
Morgan Stanley sees sharp regional differences in global equities due to taxes, margins, and real rates.
UBS stuck a similar tone: 2022 is expected to be a year of two halves, with high rates of economic growth and inflation in the first half, giving way to lower growth and inflation in the second.
On the bright side, JPMorgan Asset Management’s message is optimistic: “Despite low return expectations in public markets, we see plentiful opportunities for investors.”
Risks abound—but so do opportunities.
With reporting by Bloomberg, Forbes, The Guardian