Trader logo

The Top 9 Investing Trends to Watch in 2022

Forbes Advisor

By Grecu Daniel CristianPublished 2 years ago 7 min read
1

Consider what happened a year ago. Everyone expected a strong economic recovery and a summer of love in 2021, thanks to Covid-19 vaccinations. Some even claimed that the pandemic's conclusion was near.

Then there were the Delta and Omicron varieties. As the year 2021 comes to a close, the epidemic continues unabated, sending out a slew of confusing signals and hampering the global economic recovery.

The party, on the other hand, lasted all year in the stock market. Even catastrophic inflation data couldn't damper the animal spirits in 2021, as the cumulative return on the S&P 500 was more than 27 percent. At least not yet.

However, commentators are unsure how much further the bull market can last, given that it was only recently interrupted by the shortest down market in history in early 2020. There are signals that final call may be approaching, but other indicators suggest that investors may still have money to make in 2022.

The top nine investing trends to watch in the new year are listed below.

1. The Covid-19 Pandemic Continues to Drive Markets

What direction will the pandemic winds be blowing? There's anticipation that normalcy will return in 2022, propelling tourism, commercial real estate, and traditional retail stocks even higher—but we've heard that narrative before.

In 2021, Delta shattered the fantasy. As the year progresses, Omicron's emergence raises both short- and long-term concerns. What about the next variety, even if this one doesn't cause another wave of devastating infections? The final chapter of this drama will be written by Mother Nature, not by mankind.

Investors should recognize that, even if the pandemic isn't over yet, the post-Covid market rally has already begun. That's because most, if not all, of the advantages that can be expected from a fully reopened economy have already been factored into stock prices.

While mask laws remain in place and airline traffic remains below pre-epidemic levels, many Americans have already returned to a somewhat regular life, so even if luck turns and the pandemic eventually ends in 2022, the economy—and the stock market—might not have much more space to grow.

2. Rate Hikes by the Federal Reserve Are Likely in 2022

When the Federal Reserve maintains interest rates low, stocks do well, but the Fed's zero interest rate policy (ZIPR) is coming to an end. The only thing investors should be wondering is how many interest rate hikes the Federal Reserve will make in 2022.

Based on how traders are speculating in the futures market, the CME's FedWatch Tool expects at least two rate hikes. Meanwhile, the Fed's monthly bond purchases will be reduced, signaling the end of quantitative easing (QE) by spring.

Since early 2020, QE and a near-zero interest rate have helped to keep markets afloat. However, more bad news, such as higher inflation reports, could drive the Fed to tighten monetary policy even quicker, which would be terrible news for equities.

3. Are you fed up with hearing about inflation? It's going to get a lot worse before it gets better.

Consumers (and the financial media) in the United States are obsessed with inflation. High gas prices and supply-chain-related constraints will not be dismissed as "transitory" in 2022. Inflation will be a major problem in 2022, and if current trends aren't corrected soon, financial instability will ensue.

A combination of increasing interest rates and inflation is a prescription for a Wall Street sell-off. It could, however, indicate bond market opportunities or even good news for savers in the shape of increased APYs.

4. Supply Chain Management

Today, any U.S. port will have stacks upon stacks of shipping containers waiting to be unloaded or replenished with merchandise. This is only one sign that the supply chain problem is no longer a short-term problem.

Supply chain concerns may turn out to be beneficial in the long run. For the first time in a long time, Americans are questioning the rationality and national security consequences of purchasing and manufacturing nearly all of our products abroad. That's excellent.

However, it is likely to be detrimental for markets in the short run. Even if the virus is thankfully finished, there will be no long-term recovery until supply chains smooth out and store shelves remain stocked.And the Omicron variant isn’t making resolution of this issue any easier, guaranteeing that it will stick around in 2022.

5. Recovery, I Hardly Knew Ye

The media has consistently downplayed 2021's blazing gross domestic product (GDP) growth. The US economy was roaring in the first half of 2021, with GDP growth of 6% quarter over quarter. That's unsustainable, as we discovered in the third quarter, when growth slowed to 2%.

That was a forewarning that the re-opening dividend might have passed us by. Although a fourth-quarter recovery is likely, imagine if 2022 begins with poor GDP growth just as the Fed becomes concerned about inflation. For stockholders, this might be a dangerous mix.

6. The Job Market Remains Uncertain

In 2021, a prominent headline was the marked improvement in the job market. By November, unemployment in the United States had dropped to 4.2 percent, and the tight labor market had pushed wages up.

However, the figures paint an imperfect picture of the real labor market. The United States has yet to reclaim the 22 million jobs it lost during the pandemic recession, and it is still millions of jobs short of where the job market should have been before the pandemic.

So, what accounts for the low unemployment rate? Much of the disparity can be attributed to women being forced out of the job market while juggling child care, as well as their overrepresentation in industries that were struck hardest by the pandemic.

Companies have been harmed by the fierce competition for workers, which has resulted in greater labor prices and staffing issues. Before the labor market to return to normal, these difficulties must be resolved, and until they are, it will continue to be a drag on many public companies.

7. Has the FANNG Stocks' Bite Waned?

Look to the FAANG stocks if you want a clear indication that the stock market is about to slow down in 2022.

This is a Wall Street term for the five internet behemoths that have fueled the bull market for years, including Meta (formerly Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (parent company of Google) (GOOGL). When Microsoft (MSFT) is used instead of Netflix, the acronym FAAMG is formed.

We projected a rotation out of FAANG last year since the tech behemoths had gotten so far so fast in 2020. We were only half correct in our assumptions.Microsoft and Google gained even more in 2021 (our bad), while more modest 2021 gains at Facebook and Amazon actually underperformed the wider market.

According to Morningstar's U.S. Large-Mid Index, the FAANG stocks will account for roughly 25% of the whole market's returns in 2020. From late November until the end of the year, the FAANG stocks had only contributed about 3% of the market's gains.

So, in 2021, the FAANG stocks were not a horrible bet, but they got close. Some analysts believe that in 2022, investors will be forced to look elsewhere for profits, which will benefit companies like Tesla (TSLA). Could we recommend boring consumer staples with dividend-enhanced returns as a safe haven while inflation wreaks havoc?

8. Where Have All the Chips Gone?

Equities will continue to be impacted by the prolonged computer chip scarcity, and not only tech stocks. Because virtually all consumer durable items now have a computer chip, the scarcity is a bigger issue than laptops. Right now, Detroit parking lots are crowded with nearly-completed cars waiting for scarce computer chips to be fitted.

Even if the pandemic ended sooner, this aspect of the supply chain disruption would continue. Let me give you an example: DSP chips, which convert analog to digital signals and are used in everything from podcast mixers to televisions and cell phones, are in limited supply. A devastating fire at a Chinese company in late 2020 exacerbated pandemic concerns.

According to Intel, the chip shortfall would last until 2023. That could be a good reason to buy chip stocks, but it could also be a good cause to be concerned about the stability of most other consumer discretionary sectors.

9. Elections for the midterms

The midterm congressional elections in 2022 are likely to be the most uncertain event of the year. Because the reigning president's party traditionally loses seats in midterm elections, Republicans are expected to do well. Still, the fight appears to be becoming increasingly political, which might lead to erratic reporting, instability, and possibly bloodshed. This is the kind of unexpected turn of events that might frighten investors.

It's also not a brand-new concept. Stocks are frequently roiled in the run-up to midterm elections, especially when a power transfer in Washington is expected. Green Bush Financial's examination of market returns in 1994, 2006, and 2010—the last three times Congress changed parties—issues a clear warning.

“In all three of those years where a shift in power was in the cards, the stock market was either down or flat leading up the midterm elections in November,” the analysis found. All is not lost, however. All three years, the market churned higher after the election.

investing
1

About the Creator

Grecu Daniel Cristian

Reader insights

Be the first to share your insights about this piece.

How does it work?

Add your insights

Comments

There are no comments for this story

Be the first to respond and start the conversation.

Sign in to comment

    Find us on social media

    Miscellaneous links

    • Explore
    • Contact
    • Privacy Policy
    • Terms of Use
    • Support

    © 2024 Creatd, Inc. All Rights Reserved.