2022 Global Market Outlook
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-EAFE 1.98%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
 
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13

Currencies:

Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79
 

2021 was a year of recovery and rebound, and we expect that 2022, in contrast will be a year of moderation -specifically in growth, inflation and returns.  We believe overall growth will be slower in 2022 than 2021, but still above trend.  Equities should continue to outperform bonds.  In addition, though inflation may not have peaked yet, it will likely decline over the year.  We expect the 10-year U.S. Treasury yield to rise to around 2% by the end of 2022.

A year after Covid-19 changed the course of travel, socialization, and financial markets, 2021 witnessed a much quicker rebound than had been anticipated. The equity market upswing caught many by surprise as it was not anticipated.

Inflation brought about by supply constraints and rising labor costs are expected to linger well into 2022, with little abatement as underlying inflationary pressures persist. Some economists are even expecting stagflation to become an issue in 2022 should economic growth stagger and inflationary pressures persist.

Labor shortages triggered by the pandemic continue into 2022, leading to wage inflation and difficulty for employers filling over 10 million open positions nationwide. Workers are quitting their jobs at record levels, transitioning to higher paying positions and new occupations.

Consensus is that the Federal Reserve is on course to start removing monetary stimulus from the economy and begin raising short term rates as soon as March, in order to curtail inflation. Federal Reserve governor Christopher Waller described current inflationary pressures as “alarmingly high”.

Pandemic driven volatility due to uncertainty affected financial markets throughout 2021, distorting economic data and possibly misleading Federal Reserve members. Central banks from various countries worldwide have started to raise short term interest rates in their efforts to combat inflationary threats in both developed and emerging economies.

 

Sources: Federal Reserve, Census Bureau, CDC, Labor Dept., Treasury Dept.

 

 
The 10 year treasury yield rose from 0.93% to 1.52% over the past year

Rates Start Their Steady Climb – Fixed Income Overview

Various fixed income analysts expect a reversal in downward trending rates as the Fed prepares to start raising short term rates as early as the first quarter of 2022.

The Fed is on track to shrink its balance sheet of mortgage and treasury bonds sooner rather than later. The expectation is that the Fed will continue reducing or selling off portions of its $8.76 trillion balance sheet over the next few months. Markets view this dynamic as a form of tightening monetary policy, signaling the deliberate attempt to stifle inflation by slowing economic expansion.

The 10 year treasury bond yield rose in the final trading days of 2021 to 1.52%, up from 0.93% at the end of 2020. Corporate bond yields also rose for the year, yet not as significant as U.S. government bond yields. (Source: U.S. Treasury)

Equity Markets Surprised Many In 2021 – Global Equity Overview

All sectors of the S&P 500 Index posted gains in 2021, with the energy sector leading, following a dismal outcome in 2020. Real estate, technology and financial sectors were also leading sectors in 2021.

Domestic equity markets were resilient to the challenges brought about by the pandemic, faring better than developed international and emerging equity markets in 2021. Massive fiscal and monetary stimulus aided U.S. based companies amid supply constraints and labor shortages.

U.S. companies continue to absorb higher production costs and pass them along to consumers in the form of higher prices while maintaining favorable profit margins. Such a scenario bodes well for stocks of companies that exhibit these characteristics. (Sources: S&P, Bloomberg)

Record Mortgage Issuance Expected To Continue…For Now – Housing Market Overview

A robust housing market led to a record number of mortgages issued in 2020, with over $4 trillion in mortgage loans issued as reported by the Mortgage Bankers Association. A rush to refinance and purchase is expected as rates start to rise in 2022.

Continued low interest rates, work at home transitions, and rising wages all contributed to an ongoing demand for homes nationwide. Rising rates over the past two months have slowed the pace of refinances, yet purchases continue to materialize.

For some homebuyers, rising home prices have put homeownership out of reach, even with low interest rates and higher wages. The Federal Reserve Bank of Atlanta found that mortgages have become less affordable relative to income the most since 2008. It revealed that Americans needed about 29% of their income to pay a mortgage payment on a median priced home in early 2021, rising to 33% in October 2021. (Sources: Mortgage Bankers Association, Federal Reserve)

 
Life expectancy for all Americans in 2019 was 78.8 years falling to 77 years in 2020

IRS Introduces New Tax Brackets & Standard Deductions For 2022 – Tax Planning

Heading into the new year, the recent higher than expected inflation numbers will also be affecting tax rates for everyone. The IRS has adjusted 2022 tax brackets to reflect the most recent inflation data. Ironically, the adjustment for higher inflation will amount to lower tax rates for many taxpayers. For those earning more in 2022 than in 2021, the applicable tax bracket may actually be lower than the prior tax year because of the inflation adjustment.  Sources: IRS, taxpolicycneter.org, taxfoundation.org

How Inflation Might Ease – Consumer Behavior

The pandemic pulled forward or accelerated an enormous amount of consumer spending that was pent up for months during lock downs and closures. As a result, demand for automobiles, homes, furniture, and appliances all skyrocketed, driving prices higher and evaporating inventories.

Much of the pulled forward demand is expected to ease especially among consumers and businesses that modified their business models in order to work from home. As the transition for millions has begun to settle and become complete, additional transitions are expected to be limited.

Elevated prices for essentials including food and gasoline will limit how much money consumers have for discretionary items such as movies, furniture, and automobiles. As discretionary income falls, so does consumer demand, alleviating inflationary pressures. Several economists are predicting a pullback in the inflation rate as consumers slow spending behaviors and overall demand eases.

The most recent inflation data revealed an annual inflation rate of 6.2% from October 2020 to October 2021, the steepest increase in 31 years. Economists and market analysts alike believe that inflation may be temporary for certain goods yet more lasting for others as consumers determine where to spend.

Sources: Bureau of Labor Statistics

 
Americans received over $1 trillion in Social Security benefit payments in 2021

IMPORTANT INFORMATION

The views in this  report are subject to change at any time based upon market or other conditions and are current as of January 10, 2022. While all material is deemed to be reliable, accuracy and completeness cannot be guaranteed.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Keep in mind that, like all investing, multi-asset investing does not assure a profit or protect against loss.

No model or group of models can offer a precise estimate of future returns available from capital markets. We remain cautious that rational analytical techniques cannot predict extremes in financial behavior, such as periods of financial euphoria or investor panic. Our models rest on the assumptions of normal and rational financial behavior. Forecasting models are inherently uncertain, subject to change at any time based on a variety of factors and can be inaccurate. Russell believes that the utility of this information is highest in evaluating the relative relationships of various components of a globally diversified portfolio. As such, the models may offer insights into the prudence of over or under weighting those components from time to time or under periods of extreme dislocation. The models are explicitly not intended as market timing signals.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

 

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.