Market Outlook 2022
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Outlook Summary
To sum up our market outlook for the remainder of 2021 and 2022, the current market risks are, “priced in, but sensitive to surprises”.
Of the three major market forces taking center stage (Omicron, Fed/interest rates, inflation), all three have failed to cause any major market upset because, despite being directly counterproductive to economic growth, they are proceeding exactly as the market expected them to. As these forces continue apace, we believe the economic foundation for markets is very solid and we remain bullish on risk assets.
To caveat this claim, equity markets are particularly sensitive to surprises, with lower inflation and higher growth driving a +15-20% return by 2022E or higher inflation and lower growth driving a ~20-25% loss. In-line consensus forecasts vary from +3-8% broad index returns by 2022E.
Omicron, a hawkish Fed, and inflation sit against a backdrop of impressive economic growth (global +4% 2022E) and near-universal equity overweight by portfolio managers. We expect this trend to continue as retail investors plow money into broad-based indexes and avoid bonds as much as possible.