rtmark
LearnBonds.com

What Lies ahead for US Stocks in 2022 after an Impressive 2021?

us stocks in 2022 prediction

While US stocks traded on a weak note on the last trading day of 2021, it does not mask the fact that we had among the best risk-adjusted returns.

The S&P 500 gained almost 27% in the year, its third consecutive year of double-digit returns. Over the last three years, the index has gained almost 90%. If we account for the dividends, the world’s most popular index has nearly doubled investors’ money in three years. It is the best three-year rolling return performance since 1999.

S&P 500 outperformed in 2021

In 2021, the S&P 500 outperformed the Nasdaq Index which was up around 21%. The underperformance of the tech-heavy Nasdaq is not hard to comprehend looking at the bloodbath in some of the tech stocks, especially the growth names and “stay-at-home” companies. The Dow Jones Industrial Average gained 19% during the year.

Commenting on the 2021 price action, Goldman’s chief U.S. equity strategist David Kostin said “In retrospect, 2021 has been as near certain a year for portfolio managers as an equity investor could imagine.” He added, “High return combined with low realized volatility has generated one of the highest risk-adjusted returns in the past century.”

Muted expectations from US stocks in 2022

Meanwhile, the expectations from US stocks are relatively muted for 2021 and Goldman Sachs sees the index reaching 5,100 by the end of the year, which would mean about 7% upside from here. Even the most bullish brokerages don’t see the index rising above 5,400 next year. Morgan Stanley, expects markets to correct and close the year at 4,400. It is among the most bearish brokerages and its estimates are below the consensus forecast of single-digit returns.

JPMorgan expects a recovery

JPMorgan Chase expects the S&P 500 to hit 5,050 in 2022. “Our view is that 2022 will be the year of a full global recovery, an end of the global pandemic, and a return to normal conditions we had prior to the Covid-19 outbreak,” said JPMorgan analysts led by Marko Kolanovic, the chief global markets strategist.

The note added, “In our view, this is warranted by achieving broad population immunity and with the help of human ingenuity, such as new therapeutics expected to be broadly available in 2022. While JPMorgan is bullish on risk assets like equities and commodities, it is bearish on bonds.

Earnings growth could drive US stocks higher

The brokerage believes that while the valuations would be capped amid the rise in real interest rates and there would be sector rotation among stocks, profit growth would drive US stock markets higher, just as they did in 2021. Consensus estimates call for an 8.8% increase in S&P 500 profitability in 2022.

Volatility might pick up in US stocks

Drawing parallels between low volatility years like 2013 and 2017, which were followed by high volatility in 2014 and 2018 respectively, Thomas Hayes, the chair of Great Hill Capital believes that market volatility could be high in 2022.

Watch out for geopolitical risks

Geopolitical risks, especially the US-Russia tensions over Ukraine, and the continued souring of US-China relations would be the key risks for markets. Also, while a month back, it looked that the crippling supply chain issues of 2021 would wane away in 2022, the fast spread of the omicron variant has complicated the picture.

Another factor worth watching would be the Federal Reserve’s pivot towards rate hikes. The dot plot calls for three rate hikes in 2022 and the first one might come as soon as March after the Fed is done with its bond-buying program.

us stocks outperformed in 2021

US stocks could react to rate hikes

As the Fed squeezes away liquidity to tame the soaring US inflation, which is running at multi-decade highs, we could see its repercussions on the stock markets as well. According to Peter Boockvar, chief investment officer at Bleakley Advisory Group “That liquidity flow is slowing down, and we know how much of a help it’s been.” He added, “You can’t separate a Fed tightening cycle from the stock market. You can’t separate the market. They’re all connected. There’s no such thing that you can avoid the tightening of financial conditions.”

Here it is worth noting that a rate hike does not necessarily lead to a crash in stock markets. However, as interest rates rise, investors might find fixed income attractive and we could see money from stocks to fixed income. Also, while the markets are prepared for rate hikes, a faster than expected tightening might negatively impact sentiments.

Consumer staples outperformed tech in December

Matt Maley of Miller Tabak is of the view that investors are wary of a rate hike and points to the December outperformance of staples stocks over tech. “In other words, that action in the stock market over the past several weeks has been a lot different than it has seemed to a lot of people.  We have not seen a melt-up … and the tech stocks have not done as well as most people think,” said Maley.

He added, “More importantly, one of the most defensive groups in the marketplace has been the one that has been rallying nicely.  In our opinion, this tells us that investors are quite worried about the effect that the Fed’s new (more aggressive) tightening cycle could have on the stock market next year.”

Keep invested in US stocks

US stocks have been among the best performing asset class over the last decade and even at his age, Warren Buffett has almost all his wealth tied up in US stocks.

Over the long-term stock markets are the best asset class. While 2022 might not be as fruitful for investors as the preceding three years, investors should do a rebalancing and maintain the desired exposure to equities.

For more information on trading in stocks, please see our selection of some of the best online stockbrokers. If you wish to trade derivatives, we also have reviewed a list of derivative brokers you can consider.

Also, if you are not well equipped to research stocks or want to avoid the hassle of identifying and investing in stocks, you can pick ETFs that give you diversified exposure to different themes.

By investing in an ETF, one gets returns that are linked to the underlying index after accounting for the fees and other transaction costs. There is also a guide on how to trade in ETFs.

Trusted & Regulated Stock & CFD Brokers

Rating

What we like

  • 0% Fees on Stocks
  • 5000+ Stocks, ETFs and other Markets
  • Accepts Paypal Deposits

Min Deposit

$200

Charge per Trade

Zero Commission on real stocks

Rating

64 traders signed up today

Visit Now

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Available Assets

  • Total Number of Stocks & Shares5000+
  • US Stocks
  • German Stocks
  • UK Stocks
  • European
  • ETF Stocks
  • IPO
  • Funds
  • Bonds
  • Options
  • Futures
  • CFDs
  • Crypto

Charge per Trade

  • FTSE 100 Zero Commission
  • NASDAQ Zero Commission
  • DAX Zero Commission
  • Facebook Zero Commission
  • Alphabet Zero Commission
  • Tesla Zero Commission
  • Apple Zero Commission
  • Microsoft Zero Commission

Deposit Method

  • Wire Transfer
  • Credit Cards
  • Bank Account
  • Paypall
  • Skrill
  • Neteller

What we like

  • 0% Commission
  • Trade Stocks Via CFDs
  • Authorized & regulated by the FCA

Min Deposit

$100

Charge per Trade

Zero Commission

Rating

Visit Now

76.4% of retail investor accounts lose money when trading CFDs with this provider.

Available Assets

  • Total Number of Stocks & Shares+2000
  • US Stocks
  • German Stocks
  • UK Stocks
  • European
  • ETF Stocks
  • IPO
  • Funds
  • Bonds
  • Options
  • Future
  • CFDs
  • Crypto

Charge per Trade

  • FTSE 100 Zero Commission
  • NASDAQ Zero Commission
  • Dax Zero Commission
  • Facebook Zero Commission
  • Alphabet Zero Commission
  • Tesla Zero Commission
  • Apple Zero Commission
  • Microsoft Zero Commission

Deposit Method

  • Wire transfer
  • Credit Cards
  • Bank Account
  • Paypal
  • Skrill
Users should remember that all trading carries risks and users should only invest in regulated firms. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.