7 Views of 2022
Each January, we publish our 7 views for the coming year. These aren’t meant to be wild predictions for the market. They are what HFS believes could take place in the coming year. More importantly is the impact these views, if they occur, would have on investment portfolios.
As a commitment to our valued clients,
- Global growth slows from last year but is still at the second fastest pace in 20 years. Unlike last year, international growth is faster than the U.S.
- International equity markets, both developed and emerging, outperform U.S. equity market indices.
- Wide swings among individual stocks and sectors continue. Peak earnings growth is behind the U.S. equity markets, but earnings still could grow in the low, double digits for the S&P 500. We prefer value-oriented sectors over growth, especially financial and cyclical stocks. Volatility, as measured by the number of 1% moves, will double from last year, but we don’t foresee a bear market in U.S. equities, which is defined as a fall of 20% from a high point.
- U.S. small and mid-cap companies will benefit from the accelerated adoption of technologies brought forward by the pandemic. They also are more agile in adjusting to higher inflation and the lingering supply bottlenecks. We believe many investors overlook international small cap stocks and believe they should broaden exposure to this asset group.
- Real assets, such as commodities and real estate, have positive returns as inflation remains elevated. We continue to prefer broad based exposure to commodities.
- The Fed will begin raising rates as scheduled in the first half of the year. Inflation remains elevated above the Fed’s target of 2%. Interest rates rise, and the 10-year treasury ends the year above 2% for the first time since 2018. The 10-year treasury also is range bound, moving between 1.5% and 2. 50% throughout the year.
- Investors will start to move away from the record cash they now hold and look for new avenues to invest. This will help support financial assets and enable alternative assets to become more mainstream.
We are coming off a year that was very positive for equity markets but tested us in many other ways. Hopefully we have seen the worst of COVID and continue down the path to recovery. We do believe investors may be tested more financially this year than last. We expect more volatility in financial markets and do not believe we will see the same magnitude of strong returns in equity markets as we have experienced over the past three years.