[ad_1]
The recent spike in market volatility could herald a bumpier US stock market in 2022 as investors face a turning point in monetary policy amid the pandemic.
“There will likely be some heightened volatility around the potential tightening of policy from the Fed,” Shawn Snyder, chief of investment strategy at Citigroup’s US consumer wealth management division, said in a telephone interview. “Omicron is throwing in a bit of a wrench” for the 2022 outlook, he said of the new strain of the coronavirus, although investors were encouraged by some early signs that it may be less dangerous than initially feared.
The CBOE Volatility Index VX00,
or VIX, jumped in late November and remains above the 200-day moving average, according to FactSet data, even after falling since last week. The VIX rose above 30 for the first time since the first quarter of 2021 last week.
“That’s a major transition that creates tensions for investors,” Lauren Goodwin, economist and director of portfolio strategy at New York Life Investment, said in a telephone interview. The Fed appears to be positioning itself for more flexibility for potential rate hikes next year, with heightened inflationary pressures likely to lead to more rate hikes in 2022 than currently expected, bringing more market risk, she said.
Some investors worry that interest-rate sensitive growth and technology stocks would be particularly vulnerable if the Fed were to aggressively tighten its monetary policy through rate hikes. The S&P 500 Index, SPX,
which has significant exposure to technology is on track for a third straight year of strong gains after rising nearly 25% in 2021 through Tuesday, according to FactSet.
The US stock market is likely to deliver more modest gains next year “accompanied by higher volatility,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab, told MarketWatch by phone.
Goodwin also said she expects more volatility amid transitions such as the easing of the fiscal stimulus that directly supported consumers during the COVID-19 crisis and the Fed taking its “foot of gas” in the economic recovery. She expects “much lower” stock returns next year compared to gains so far in 2021.
“Most of the equity gains should be realized between now” and the first half of 2022, “when the winds in monetary and fiscal policy will be strongest,” said JPMorgan Chase & Co. Wednesday in a 2022 outlook report.
Wall Street banks have rolled out their 2022 forecasts for the S&P 500, with Goldman Sachs Group and JPMorgan among the most optimistic on US stocks.
Goldman expects the S&P 500 to end at 5,100 in 2022, according to a Dec. 3 portfolio strategy research report from the bank. Meanwhile, in late November, JPMorgan analysts predicted in a research report that the US stock benchmark will climb to 5,050 next year, in part on “robust earnings growth” and easing supply chain problems. RBC Capital Markets has forecast the same price target as JPMorgan, while Deutsche Bank predicts the S&P 500 will end at 5,000 next year, according to a slide presentation from the chief investment firm.
Meanwhile, Citigroup set an S&P 500 target of 4,900 for the end of 2022, according to a research report from the bank in late October. Barclays fell below that level, predicting in a US equity strategy report this month that the index will end at 4,800 next year.
“Proceed with caution,” Barclays analysts wrote in their Dec. 2 2022 outlook report. “We’re seeing a limited increase for equities next year,” they said. According to them, “household and corporate cash inventories should support modest earnings growth, but lingering supply chain problems, trend reversal in commodity consumption and a hard landing in China are key tail risks.”
Bank of America analysts have a lower price target than Barclays for the S&P 500 next year, with a BofA Global Research report last month that the benchmark will end at 4,600 in 2022.
“Unfortunately, we see a lot of similarities between today and 2000 — the peak of the technology bubble,” said Savita Subramanian, head of equity and quantitative strategy at BofA, at a media briefing in late November about their outlook for the US stock market.
See: S&P 500 could end ‘pretty flat’ in 2022 amid previously ‘unthinkable’ negative real interest rates, says BofA strategist
Morgan Stanley has a more bearish outlook for next year, pushing the S&P 500 below Tuesday’s closing price of 4,686.75. A report from Monday from the bank’s wealth management division shows a base case of 4,400 for the S&P 500 at the end of 2022, even with an expected earnings gain.
“We expect the S&P 500 to be bandwidth-bound and volatile, and bond yields to be negative net of inflation,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in the note. “Fixed income must be reduced to fund greater exposure to real assets and absolute return funds.”
The core of Morgan Stanley’s “cautious” view of the S&P 500 is based on P/E ratios that typically decline during “a mid-cycle transition,” Shalett said. She pointed to a chart in her note showing that “median stocks have made the midcycle transition.”
MORGAN STANLEY WEALTH MANAGEMENT REPORT FROM DEC. 6, 2021
The chart shows that “the median S&P 500 stocks have corrected 15% from its 52-week high,” but the index has been held high by the top 15 companies that now account for 40% of market cap, according to her note.
“While they may be great companies, we’re less convinced that they’ll all be great stocks in 2022 if financial conditions tighten, interest rates rise, labor costs rise and inflation remains challenging,” Shalett said. “We think profit margins for the top 15 have peaked.”
According to Morgan Stanley, this “recommends investors move to stock-picking and move away from passive index funds,” its note shows.
JPMorgan expects “international stocks, emerging markets and cyclical market segments to perform significantly better,” according to Wednesday’s report.
“The reason for this is our expectation of rising interest rates and marginally tighter monetary policy, which should be a headwind for multi-market markets like the Nasdaq,” JPMorgan strategists wrote, citing the tech-laden Nasdaq. Composite Index COMP,
Citi’s Snyder told MarketWatch that during the “midcycle” he holds high-quality stocks, “dividend growers” and global health stocks. Consistent earnings growth and “reasonable valuations” make healthcare attractive, he said, and stock betting in the area could serve as “a volatility damper” in portfolios.
Immunology is one of three mega trends According to Jeff Spiegel, head of the US iShares megatrend and international ETFs, it is poised to accelerate next year as “a range of next-gen oncology therapies come to approval and enable more targeted cancer treatment.” Shares of the iShares Genomics Immunology and Healthcare ETF IDNA,
were up about 0.2% this year based on Wednesday afternoon trading, FactSet data shows, at its latest check.
Do you want Intel in all news markets? Sign up for our daily Need to Know newsletter.
Two other megatrends to watch in 2022 are the intensification of “digital transformation” through the cloud, 5G and cybersecurity, and “automation technologies” such as robotics and artificial intelligence, Spiegel wrote in a report this month. Automation technologies should grow “in response to ongoing supply chain bottlenecks and wage inflation” during the pandemic, he wrote.
“I think next year we will actually be dealing with surpluses rather than deficits,” said Kleintop of Charles Schwab. “That will help lower inflation, especially in the second half of next year, making an aggressive path of rate hikes unlikely.”
The market expects three rate hikes by the US central bank in 2022 after Fed Chair Jerome Powell indicated last week it could accelerate the winding down of its monthly asset purchases, Deepak Puri, Deutsche Bank’s CIO for America, said at a media briefing. Monday about his prospects for next year.
While the Fed may become more aggressive in phasing out its bond purchases, potentially completing the process in March rather than June, Puri expects the Fed to still be “moderate” on rates next year. . Puri predicts the Fed will raise interest rates only once next year, which is below consensus, he said.
“We expect two rate hikes next year,” said Goodwin of New York Life Investment.
Morgan Stanley’s Shalett wrote in its 2022 Outlook note that “we are seeing a classic reflationary rebalancing in which higher nominal and real rates reflect higher average growth and inflation.” She also expects yield curves to steepen, profit margins will come under pressure from rising costs and price-to-earnings ratios will decline in ‘interest-rate sensitive sectors’.
“Within the US, we like reopening and reflationary themes and beneficiaries of higher bond yields,” JPMorgan said in its report on Wednesday. Bank strategists expect 10-year Treasury yield TMUBMUSD10Y,
will rise to 2.25% by the end of next year, the report shows.
“We believe 2022 will be the year of a full global recovery, an end to the global pandemic and a return to normal conditions we had before the COVID-19 outbreak,” said Marko Kolanovic, chief global markets strategist. at JPMorgan, and Hussein Malik, the bank’s global co-head of research, wrote in the report Wednesday.
According to Shalett, “2022 will be a critical year in most respects as the imbalances caused by the global pandemic begin to disappear and the business cycle normalizes from extremes.”
|
Sources 2/ https://www.marketwatch.com/story/proceed-with-caution-heres-what-wall-street-analysts-see-for-the-u-s-stock-market-in-2022-11638986154 The mention sources can contact us to remove/changing this article |
[ad_2]