We hope you’ve had a great start to the new year! We are excited to see what 2022 brings and look forward to working together to navigate a changing market to help you accomplish your financial goals.
Before we look at 2022, let’s take a look back at 2021:
With much of the world waking up from the pandemic along with record Federal stimulus and consumer spending, GDP continued to grow, unemployment fell to record lows, and the bull market continued to run up to new highs, while bonds posted mostly negative returns, -1.61%. (High-yield bonds were the exception, up 5.24%). However, this also brought significant supply chain issues from ever-increasing demand (we all saw pictures of cargo ships backlogged at ports), labor shortages in almost every sector (ads offering a $500 sign-on bonuses at Wendy’s?), and of course the big news of 2021: Inflation roaring back to a level not seen in decades. Economists and talking-heads on TV closed out the year arguing words like “transitory” and making predictions about what the FED will do to resolve it. Raymond James has an excellent quick recap of 2021 highlights that we’ve attached with more details you may find interesting.
Moving into 2022:
We think that 2022 will provide us with different opportunities and challenges than we had over the last two years. The overall consensus is that while we may not see the soaring market highs of 2021, we believe that we will see positive markets this year for several reasons:
- GDP is expected to grow at a pace of 3.5%, potentially giving us our first back-to-back GDP growth above 3.5% since 2000!
- Corporate earnings and profits continue to beat expectations.
- Consumers have record savings and business balance sheets are the strongest they’ve been in a long time.
- COVID appears to be shifting from Pandemic to Endemic, which should allow businesses to continue to operate as opposed to a complete shutdown with each new variant.
While large-cap growth stocks have outperformed and dominated the past couple of years, the biggest 10 names have carried the markets and much of the S&P 500 haven’t experienced those same level of gains. That trend should normalize some this year as Small and Mid-Cap valuations look attractive relative to Large Cap in the near term.
Of course, the pink elephant in the room is inflation.
We do see inflation normalizing some as supply issues resolve themselves and demand begins to normalize. Employment issues will also have upward pressure on pricing and overall inflation, but there is still a lot of optimism around demand changing to more traditional levels as people slowly join the workforce. The FED is poised to tackle inflation and most economists predict at least two rate increases this year. The FED will have to walk a careful line between controlling inflation and balancing unemployment without stalling the economy. (That’s not a job we’d want to have!)
As an overall recap, we feel positive about markets in 2022, but expect more volatility than we have experienced over the last year and will be managing portfolios accordingly.
As always, we truly value you as our client and appreciate your trust in our team at Signature Wealth Strategies.
John & Sean