As we review earnings, sales, and economic growth for 2022 we think investors should focus on several interrelated but key items:

  1. Will inflationary pressures end up being transitory as Federal Reserve President Jerome Powell has been predicting? Economists expect to see core inflationary rates start to materially decline by the summer of 2022. This week, Mr. Powell indicated they may accelerate their tapering plans.

    Higher interest rates, which provide low-risk returns, offer competition for all other asset classes.  In the context of the stock market, higher interest rates weigh on valuations and will likely dampen future stock returns.

  2. Global economic growth is expected to be robust in the first half of 2022, supporting sales and profit growth for stock prices. At the moment, this assumption by the stock market doesn’t look as risky as inflation expectations, but any new or prolonged concerns relating to Coronavirus, sovereign debt, and tax reform could negatively impact these expectations.

    Since the start of the pandemic, global stock markets have generally risen together.  In 2022, markets will likely start to differentiate themselves, with domestic and other developed markets faring better than emerging markets.

  3. Have we seen the worst of Coronavirus and its impact on the global economy? After recent news on the Omicron Covid-19 variant, our crystal ball is cloudy. It seems rational to think that regardless of new variants vaccines, medicines, and treatment plans are vastly different than during the initial outbreak. While the stock market could have some dips with new variant outbreaks the market will likely digest the news quickly.

In conclusion, future returns in most asset classes are likely to be lower than they have been over the last several years.  Long-dated bonds will likely have poorer returns going forward, as inflation continues, and interest rates rise.  Stock market returns are more likely to be mixed and will depend on how quickly interest rates ultimately rise.

Sources: Goldman Sachs

Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.