Charlie Wells
We’re less than two weeks into the year and already the stock market looks poised for a shakeup.
We just found out that U.S. inflation hit a 39-year high in 2021. Bitcoin — ascendant last January as an equity alternative for some — is off to its worst annual start since cryptocurrencies began. And Goldman Sachs now thinks that the Federal Reserve will raise interest rates four times this year.
What will that mean for your stock portfolio? Policy shifts in response to inflation and a changing outlook for non-equity assets will undoubtedly have knock-on effects on stocks. One analyst went so far as to say that a “cathartic upchuck” in the market could send the S&P 500 down 10% in the first half of the year as the Federal Reserve tightens monetary policy.
One notable twist already showing up in the market: U.S. bank stocks are in fashion again. They’ve rung in the new year with their best annual start in more than a decade. Raymond James analysts noted that rising rates and an acceleration of loan growth are reasons for recent bank bullishness.
A second trend: Europe is hot this year. Equities in the region have trailed the U.S. for the better part of a decade. But now both analysts and clients at some of the world’s largest banks are taking a second look at the continent. In a survey of 3,000 Goldman clients that asked which equity region they thought would perform best in 2022 in local currency terms, Europe attracted the most votes. It got 36% compared with 32% for the U.S. (Last year Europe garnered 21% of the vote.)
And third: Big investors think value stocks may finally have a bright year in 2022. Many expect that a return to normalcy will increase the advantages of holding value stocks in the long term. Still, some fund managers take issue with this thesis.
For more specific insights on noteworthy stocks in the year ahead, be sure to check out this in-depth primer from the analysts at Bloomberg Intelligence, who track some 2,000 companies in finance, retail, energy, technology and more. They have identified 50 stocks worth watching carefully in the next 12 months, From Airbnb and Evergrande to Robinhood and Victoria’s Secret. — Charlie Wells
Don’t Miss
- More than half of workers would consider quitting before returning to the office.
- world’s biggest crypto fortune began with a friendly poker game.
- Wall Street is using tech firms like Zillow to eat up starter homes
- Meme coins have returned to Earth.
- “Glamping” on wheels is going to be even more popular in 2022.
- Citigroup will fire vaccine holdhouts at the end of January.
Bloomberg Opinion this week, Alexis Leondis says lying flat without health insurance is very uncomfortable:
The latest data from the Bureau of Labor Statistics confirms the less romantic reality that the record percentage of Americans quitting their jobs is being driven by turnover among low-income workers in certain industries, not by burned out white-collar workers. One explanation for the difference could be that in the U.S., health coverage is tied to employment.
Read her full argument
You Ask, We Answer
We sold our house a few months ago thinking the housing market would chill eventually. It does not appear that is going to be the case. We are hearing stories about hyper-inflation coming. Is it reasonable to purchase a plot of land in a good area and just hold on to it? What’s the best way to protect ourselves? — J Ward, 38, Sarasota Florida
While the probability of Venezuela-type hyperinflation is very low, you're on the right track if you are going to try and hedge against inflation. Real assets, like raw land and commodities, tend to perform better with inflation. But these types of assets can be costly to maintain and store and they don’t produce earnings or rent. In addition, these types of assets can be volatile and illiquid. If you are attempting to hedge the cost of future homeownership, buying a home or commercial property and renting it out might be better than buying raw land. Rent is often easy to adjust to increasing costs, and you would participate in price increases. Other common inflation hedges include equities, TIPS, I-Bonds, commodity-driven mutual funds, and REITs. Equity valuations may need to adjust to higher rates in the short term, but it is difficult to beat their inflation-adjusted growth over the long term. Equities are also very cheap to own and require little maintenance. — Mark Struthers, Financial Planner at Sona Wealth in Minnesota
Send us questions about your own financial dilemmas to [email protected].
Coming up
- Buyout firm is expected to begin trading today after its IPO.
- It’s a big week for bank earnings: JPMorganWells FargoCitigroup all report on Friday.
- Monday is Martin Luther King Day
