According to the MarketMatrix.net, the recent spike in market volatility could signal a more bumpy stock market in 2022, as the pandemic (Covid-19) is not over and will usher in an inflection point in monetary policy.
Sean Snyder, head of investment strategy at CitiGroup's wealth management division, said: "There may be some higher volatility in the tightening of policy around the Fed. While the Omicron variant is a bit of a wrench with the outlook for 2022, the impact of the variant remains uncertain, although investors seem to see some signs of optimism in the near term. ”
According to FactSet, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which rose in late November, remains above its 200-day moving average even after the recent rally weakened. Recently, the indicator broke through 30 points for the first time since the first quarter of 2021 as the market was uneasy about the emergence of Omicron and the Fed could pull out some easing faster than investors expected, the data showed.
Lauren Goodwin, economist and director of portfolio strategy at New York Life Investments, said: "This is a huge shift that creates tension for investors. The Fed appears to be providing more flexibility for next year's rate hikes, and increased inflationary pressures could mean that rate hikes in 2022 will be larger than currently expected, creating more market risk. ”
Some investors worry that interest rate-sensitive growth and technology stocks will be particularly vulnerable if the Fed aggressively tightens monetary policy by raising interest rates. According to FactSet, the S&P 500 has a large exposure to technology, which means that the broader market is also at greater risk.
▉ Broader market targets
Goodwin expects volatility to increase as fiscal stimulus measures are also rolled out and the Fed "kicks the gas pedal" during a critical period of economic recovery. He expects the stock market to return "much lower" next year.
Jeffrey Top, chief global investment strategist at Charles Schwab, said: "U.S. equities are likely to gain more modestly next year, accompanied by higher volatility. ”
In his 2022 outlook report, JPMorgan strategists said: "Between now and the first half of 2022, most stocks will achieve their annual gains, when monetary and fiscal policy support will be the strongest." ”
It's time for Wall Street to roll out its broader-cap price target forecasts for next year, with Credit Suisse, Smol and Goldman Sachs being the most bullish investment banks.
Credit Suisse analysts recently said they raised their S&P 500 target price to 5,200 from 5,000 points, in part because of the expected economic growth to be "strong." Goldman Sachs expects the broader market to rise to 5,100 points next year.
The 2022 S&P 500 target price for major institutions.
Analysts at JPMorgan Chase expect the S&P 500 to rise to 5,050 next year, in part due to "strong earnings growth" and easing supply chain woes. RBC Capital Markets is in line with Xiaomo's target price forecast, while Deutsche Bank's forecast is slightly lower at 5,000 points.
Barclays predicts 4,800 points, though. Analysts at the bank noted that investors need to "tread carefully" next year, arguing that the broader market has "limited upside" next year. In their view, "household and corporate cash reserves should support modest earnings growth, but ongoing supply chain woes and reversals in commodity consumption trends are key tail risks for Tail Risks." ”
Bank of America's forecast is lower than Barclays' forecast at 4,600. Weta Subonamania, head of U.S. equity and quantitative strategy at the bank, said: "Unfortunately, we see a lot of similarities between today and 2000 – the tech bubble peak. ”
Morgan Stanley is more pessimistic about next year's outlook, expecting the broader market to fall to 4,400 next year. Lisa Shalitt, chief investment officer of the bank's wealth management firm, said: "We expect the S&P 500 to be range-bound, bond returns to only offset inflation, fixed incomes should fall and we will increase our exposure to physical assets and absolute return funds." ”
At the heart of Damo's "cautious" view of the S&P 500 is based on the tendency to compress the P/E ratio, which is usually during the "medium-term transition," she said.
She noted that the median S&P 500 constituents have been revised 15 percent from their 52-week highs, but that the 15 largest companies, which currently account for 40 percent of its market capitalization, keep the index high.
"While they may be great companies, we don't quite believe they'll still be great stocks in 2022 because financial conditions are tightening, interest rates are rising, employment costs are rising and inflation remains challenging," Shalit said. We believe profit growth for the top 15 companies has peaked. ”
"This suggests that investors should turn to stock picking and stay away from passive index funds," she said. ”
Xiaomo's strategists believe that "international stock markets, emerging markets and cyclical stocks will significantly outperform the market." ”
"The reason, they explained, is that we expect interest rates to rise and monetary policy to tighten slightly, which should be a headwind for high-P/E markets like nasdaq." ”
Citi's Snyder said that in the "middle of the cycle," he prefers high-quality stocks, dividend stocks and healthcare stocks. Sustained earnings growth and "reasonable valuations" make healthcare stocks attractive, he said, and that this segment of the position can serve as a "volatility suppressor" for portfolios.
▉ Interest rate outlook
Charles Schwab's Top said: "I think we will actually solve the problem of excess next year, not the shortage problem. That will help depress inflation, especially in the second half of next year, making aggressive rate hikes unlikely. ”
Deutsche Bank's chief information officer, Deepak Puri, said the market expected the U.S. central bank to raise interest rates three times in 2022 after Fed Chairman Jerome Powell said last week that it might accelerate its asset buying (Taper).
Puri said that while the Fed may become more aggressive in its debt drawdown, likely to complete the process in March instead of June, he expects the Fed to remain "dovish" on interest rates next year. He expects only one rate hike next year.
However, Goodwin of New York Life Investments said, "We expect to raise rates twice next year. ”
"We see a classic inflation rebalancing in which higher nominal and real interest rates reflect higher average growth rates and inflation rates," Daimo expects. The Yield Curve is expected to be steeper, profit margins will be squeezed by rising costs, and price-to-earnings ratios for interest-sensitive industries will be compressed. ”
Xiao Mo also expects: "In the United States, we like the theme of reopening and reflation and the beneficiaries of rising bond yields. We expect the 10-year Treasury yield to rise to 2.25% by the end of next year. ”
Commenting on the macro outlook, Marko Kolanovic, the bank's chief global market strategist, said: "Our view is that 2022 will be a year of full global recovery, a global pandemic, and a return to normalcy. ”
+++ Follow +++ Bloomberg/Reuters/CNBC/WSJ Top News Sources First-hand Selected Information, Top Investment Banking Institutions Macro/Stock Indexes/Crude Oil/Gold Research Reports