Investors fear inflation most in 2022, see stock slowdown: CNBC survey

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Wall Street investors believe inflation will remain a major roadblock for markets in 2022 and equities will deliver only moderate returns, according to a new CNBC Delivering Alpha investor survey.

We surveyed approximately 400 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood in the markets for the rest of 2021 and next year. The survey was conducted this week.

More than half of respondents said inflation is their number one concern for 2022. Thirty percent said the Federal Reserve’s top concern raising interest rates at the wrong time is their number one concern, while 17% said the economic impact of an ongoing recession pandemic is their main concern.

For months, investors have watched various inflation data show their highest level in decades. The consumer price index, which measures the cost of a wide variety of goods and services, rose 6.8% year-on-year in November, the fastest pace since June 1982.

The Fed said it will take aggressive policy moves in response to rising inflation, including accelerating the tapering of its monthly bond purchases. Fed officials also see no fewer than three rate hikes coming next year.

“There are serious headwinds to worry about,” Brad McMillan, chief investment officer at Commonwealth Financial Network, said in a note. “Inflation is at its highest level in decades. Supply chain problems seem unsolvable. If these problems get worse, they could derail the recovery.”

The S&P 500 is up more than 27% this year to an all-time high as the market climbed a wall of worries from rising inflation to the ongoing pandemic to the rollback of monetary stimulus. For 2022, investors believe earnings will be much lower.

More than 50% of respondents expect the S&P 500 to rise by less than 10% by 2022. Nearly 18% think the market will produce another double-digit year, while 10% see a flatline for stocks.

Among the various asset classes, equities are still the number one choice for investors, according to the research result.

“While inflation is a concern and a source of volatility, it also makes equities the most attractive choice among major asset classes,” Tony DeSpirito, chief investment officer of US fundamental active equity at BlackRock, said in a note. “Individual companies will do things differently, highlighting the importance of a stock-by-stock approach.”

In terms of stock preferences, 35% of respondents said they prefer financials and 27% cyclical names benefiting from the economic recovery. Technology stocks generally became less favorable among investors.