Some Financial Thoughts for 2022

Open road highway leading off into the distance
Markets
Ben Verschuere - Chief Investment Officer
|
December 23, 2021

Tis’ the season for New Year's resolution, contemplative reflection, and, of course, financial predictions. The beauty of financial markets is that they are backed with data, so forecasts can be unambiguously tracked. The benefit of making predictions is not to prove that one can predict the future (who can…?) but more about generating some feedback from which insights can be gained and to improving the learning process. It is in that light that I try to make financial predictions every year: To refine and polish my thoughts about the interplay between the economy and financial markets. 

First let’s take a step back and have a look at what was predicted last year (here):  6 out of 7 projections came correct which isn't bad. Though two things come to mind: 1) I was a bit wrong about the equity markets 2) For some of the projections I made, the markets went well beyond my already contrarian views…

Enough about last year, here are 8 predictions for 2022… As always, these shouldn’t be taken as investment advice or trading recommendations. These are just my own personal views offered to the public at-large and not to any one particular investor.

1) Growth will moderate with real GDP being below 3pct for the full year

There will be much less government stimulus next year (as documented here) which will create some headwinds for the economy at a time when the Fed is also tightening monetary policy.

2) CPI will not be above 4.0% next year

Markets are expecting inflation to be above 4.0% in 2022, but we are currently seeing signs that the supply shortage is starting to correct. My expectation for next year is for consumption to move  from goods to services as the economy keeps reopening (fingers crossed) which should further remove some of the price pressure.

Baltic Dry Index (A measure of shipping cost). Source: Bloomberg

3) 30yr bond yield will stay below the 2021 high (2.50%)

Many are forecasting a large back up in bond yields for 2022 based on the end of the Fed’s quantitative easing coupled with some rate hikes. If history is a lesson, when the Fed previously halted  its bond purchases, bond yields actually moved lower in (all) of the past 3 instances. The more benign outlook on inflation might also cap the upside risk on bond yields. 

4) High Yield Credit will experience positive returns

While I expect economic growth to slow down next year, I don’t foresee a major downturn appearing.This should be a relatively friendly environment for credit markets to generate positive returns.

5) Gold will touch $1,600 

With the Fed winding down its bond purchases and a less inflationary environment settling in, I don’t expect gold to be an attractive asset next year. Some more downside pressure should thus be expected for this precious metal following an already weak 2021.

6) Oil will touch $55

With economic growth slowing and US oil production ramping, the upside for oil should be capped. In this environment oil might well revert back into its $50 to $60 range. 

US Oil Production in MM barrels per day. Source: Bloomberg 

7) The USD will remain strong end EURSUD will touch 1.07

Following the Fed QE wind down and its much more hawkish stance than the ECB (still far away from raising interest rates), we should expect the USD to remain firm next year.

8) The S&P 500 will experience a 7.5% correction but finish the year higher

We haven't had a correction of more than 5pct for the last 12 months, so it wouldn't be surprising if a dip of more than 7.5pct took place next year; especially given the lower monetary and fiscal stimulus. At the same time, the economy still remains on  good footing, so it would make sense for equities to keep performing.

These are my 8 predictions for next year. Forecasting the future is not (yet) a perfect science so let's see what 2022 brings… Happy new year!


Ben Verschuere

Chief Investment Officer

Treasure Investment Management, LLC

Disclaimer: The views and opinions in this piece are just the author's own, offered to the public at large and not to any one particular investor.

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