Consider the events of a year ago.In 2021, everyone was anticipating a robust economic revival as well as a summer of love, both of which were made possible by Covid-19 vaccinations.
Some were even predicting the end of the pandemic as early as this week.
Then there were the Delta and Omicron varieties to consider. Although we are approaching the end of the year 2021, the pandemic continues unabated, generating one confused signal after another and significantly complicating the worldwide economic recovery.
The party, on the other hand, continued throughout the entire year on the stock market. The cumulative return on the S&P 500 index in 2021 was more than 27 percent, and not even the release of shocking inflation figures could damper the market’s high spirits.
At least not for the time being.
However, many are concerned about how long the bull market will continue to persist, given that it was only briefly interrupted by the shortest down market in history in early 2020.
However, there are other signals that investors will still have money to earn in 2022, which temper the possibility of a last-call scenario.
The following are the top six investing trends to keep an eye out for in the coming year:
1. Markets Are Still Being Driven by the Covid-19 Pandemic
What direction will the pandemic winds be blowing?
Some believe that 2022 will be the year when normalcy is re-established, resulting in even higher stock prices for travel, commercial real estate, and traditional retail companies—but we’ve heard this narrative before.
Delta shattered the ideal in the year 2021. And as the calendar year comes to a close, the development of Omicron raises concerns for both the short and long future.
Even if this variety does not result in a new wave of lethal illnesses, what about the variant that follows this one? Mother Nature, not humans, will be the ones to write the final chapter of this tale.
Specifically, investors should be aware that the post-Covid market boom has already begun, even if the pandemic has not yet been declared over by the World Health Organization.
This is due to the fact that stock markets have very certainly already factored in the majority, if not all, of the profits that can be expected from a fully reopened economy.
However, even though there are still mask mandates in place and airline travel is still at or below pre-pandemic levels, many Americans have already returned to a relatively normal way of life. If luck turns and the pandemic finally ends sometime in 2022, there may not be much more room for the economy (or stock market) to grow.
2. Increases in Federal Reserve interest rates are expected in 2022.
Stocks do well while the Federal Reserve maintains low interest rates, but the Federal Reserve’s zero interest rate policy (ZIPR) is coming to an end soon.
The only question that investors should be asking themselves in 2022 is how many interest rate hikes will occur by the Federal Reserve.
Based on the way traders are speculating in the futures market, the CME’s FedWatch Tool expects at least two rate increases in the near future.
The reductions in the Federal Reserve’s monthly asset purchases (the so-called taper) are already planned, and this means that quantitative easing (QE) will be completed by the spring.
Since the beginning of 2020, quantitative easing and a historically low interest rate have assisted in keeping stocks afloat.
The Fed may be forced to tighten monetary policy even more quickly if it receives more bad news, such as additional higher inflation reports, which would be detrimental to the stock market.
3. Are you getting tired of hearing about inflation?
Prior to things being better, things will get worse. It is indisputable that consumers in the United States (as well as the financial media) are obsessed with inflation.
High gas prices and supply-chain-related constraints will not be able to be dismissed as “transitory” in 2022 if they are not addressed.
Inflation’s trajectory will become much more prominent in 2022, and if current trends are not reversed quickly, the financial markets will experience significant volatility and instability.
Greater interest rates combined with higher inflation are a surefire prescription for a Wall Street meltdown.
Although it may signal opportunities in the bond market, it may also give some good news for savers in the shape of increased annual percentage yields.
4. Supply Chain Management Solutions
Take a look around any port in the United States today and you’ll see stacks and heaps of shipping containers ready to be unloaded or replenished with merchandise.
The fact that this is happening is simply one indication that the supply chain dilemma is no longer a short-term problem.
Over the long term, it is possible that supply chain concerns will be beneficial to the company.
For the first time in a long time, Americans are questioning the wisdom and national security consequences of purchasing and manufacturing practically all of our products in foreign countries.
That’s a nice thing.
However, in the medium run, it is likely to be detrimental to the markets.
No matter how quickly the pandemic comes to an end, there will be no long-term recovery until supply lines are smoothed out and store shelves are kept full.
This is made worse by the fact that the Omicron variation ensures that the problem will persist until 2022.
5. Recovery, You Were a Stranger to Me
The blazing gross domestic product (GDP) growth expected in 2021 has been understated in the media on numerous occasions.
The economy of the United States was booming in the first half of 2021, with GDP growing at a rate of 6 percent quarter-over-quarter.
That is not sustainable, as we discovered in the third quarter, when growth slowed to a mere 2 percent.
As a result, there was an early hint that the re-opening dividend might have passed us by.
However, imagine if 2022 begins with low levels of GDP growth at the same time that the Federal Reserve becomes seriously concerned about inflation. That would be a nightmare scenario.
For stockholders, this might be a dangerous mix to be in.
6. The job market is still in a state of flux.
One of the most talked-about stories in 2021 was the significant improvement in the job situation.
By November, the unemployment rate in the United States had decreased to 4.2 percent, and, as you might anticipate, the tight labour market has contributed to salary increases.
However, the data only provide a partial picture of the true state of the job market.
The United States has not yet recovered the 22 million jobs it lost during the pandemic recession, and the country is millions of jobs short of where it should have been on its pre-pandemic trajectory in terms of employment.
So, what is it about unemployment that is so low?
Women being forced out of the job market while juggling child care responsibilities, as well as their overrepresentation in industries that were struck the worst by the epidemic, can be attributed to a large part of the discrepancy.
With increased labour costs and staffing issues as a result of the fierce rivalry for workers, businesses have suffered. These concerns must be resolved before the labour market can return to normalcy, and until they are, they will continue to be a source of concern for many public corporations.