The recent spike in market volatility may herald a bumpier U.S. stock market in 2022, as investors come to grips with an inflection point in monetary policy during the pandemic.
Some investors worry that interest rate-sensitive growth and technology stocks would be particularly vulnerable should the Fed aggressively tighten its monetary policy through rate hikes. The S&P 500 index, SPX, +0.95% which has a large exposure to tech, is on track for a third straight year of strong gains after rising almost 25% in 2021 through Tuesday, according to FactSet.
Wall Street banks have been rolling out their 2022 forecasts for the S&P 500, with Credit Suisse Group, Goldman Sachs Group and JPMorgan being among the most bullish on U.S. stocks. “Proceed with caution,” the Barclays analysts wrote in their 2022 outlook report dated Dec. 2. “We see limited upside for equities next year,” they said. In their view, “household and corporate cash hoards should support modest earnings growth but persistent supply chain woes, reversal of goods consumption to trend and China hard-landing are key tail risks.”
Morgan Stanley has a more bearish outlook for next year that puts the S&P 500 below the index’s close Tuesday at 4,686.75. A report Monday from the bank’s wealth management division shows a base-case forecast of 4,400 for the S&P 500 at the end of 2022 even with an expected gain in earnings. “While they may be great companies, we are less convinced they will all be great stocks in 2022 as financial conditions tighten, interest rates rise, employment costs increase and inflation remains challenging,” Shalett said. “We think profit margins for the top 15 have peaked.”
Citi’s Snyder told MarketWatch that during “midcycle” he likes high-quality stocks, “dividend-growers” and global healthcare equities. Consistent earnings growth and “reasonable valuations” make healthcare attractive, he said, and stock bets in the area can serve as “a volatility dampener” in portfolios.
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