This time of year is always fun in the investment world as all the major firms roll out their investment outlooks for the new year. Because making predictions is so hard, especially about the future, we read as many of these as come our way. The LPL 2022 Outlook was published today. We pay special attention to our home cooking and the format is always compelling. We will have more to share on that later.
To be clear, we don’t believe anyone can reliably predict what will specifically happen in the coming year. But we like to synthesize as many perspectives as possible and oftentimes there are consistent themes. We are already seeing some of those come to light.
The most common theme so far has to be the focus on inflation. There are two basic views. In the first camp, we have the inflation-is-here-to-stay group. A lot of the predictions on this side have a darker view toward 2022 with thoughts on how to prepare your portfolio for hot inflation and a hawkish fed. On the other side, there is the thought that inflation is running higher for now but will moderate soon. This is more in line with what the economists at the Federal Reserve have been saying, really since last year. As the economic data has continued to come in with somewhat elevated inflation figures, Fed Chair Jay Powell may start to change his tune. We’ll see, possible as soon as next week.
A second common theme relates to the concentration of just a few stocks within the major indices. We won’t name names but many firms seem to be warning about the overly concentrated weighting of FANG stocks or others with similar acronyms. This would seem obvious since the situation has built up over a number of years, but quite a few outlooks mention it as an outsized risk. It’s probably not a bad thing to mention since many investors own the names individually, as well as in their fund holdings. In addition, many firms are predicting higher than average volatility in 2022, mostly related to this perspective.
Another investment theme that has become a common topic of discussion just about everywhere you go surrounds digital assets and blockchain related investments. Here the topic has as many perspectives as there are firms. The subject is complex and for the most part has been ignored by the majority of our industry until very recently. We have followed the trend for many years and believe it to be highly speculative. The underlying blockchain technology, which is a ledger system that is distributed publicly on global computer networks, has some interesting applications but is still in its infancy. If you’d like to learn more, please call 928-460-5511.
Finally, there are a number of outlooks that mention China and possible hiccups in the global economy that could arise from a slowdown there. To be sure, Chinese economic growth is not what it was. And there is a definite trend toward de-coupling between the economies of the US and China that began with the Trump era tariffs, most of which remain in place. But geopolitics is probably the most difficult area in which to make predictions. Serious China analysts have been arguing in favor of a purposeful slowdown and a shift in economic policy where the domestic sector would play a much larger role than the exporters. This is no small feat for any economy at this stage of its development, and it is expected to be a challenge. The two major world economies may look like they’re headed for a breakup but the bonds that tie them together are probably a lot tougher to sever than most realize. For sure, we’ll continue to see a heavy focus on the tech sector from regulators in both governments.
We would encourage you to reach out to us with any questions you have about these topics and how they might relate to your particular situation and if you’d like to read the LPL 2022 Outlook entitled “Passing the Baton” follow the link below. You’ll learn more about how we believe the economy will evolve in 2022.
Finally, we’d like to express our gratitude to all who have followed us and read the EverVest blog and wish you and your family a healthy and happy 2022.
https://view.ceros.com/lpl/outlook2022/p/1
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.