Goldman Sachs Out With 10 Top Macro and Stock Market Themes for 2022

If you had been asleep for the past almost two years and awoke today, you would be in for the surprise of your life. A pandemic swept the world, a massive high-velocity 30% sell-off in early 2020 was followed by one of the biggest stock market rallies ever, which, at least until recently, has shown little signs of slowing down. Then, after 30 years of virtually lying dormant, inflation has returned at both the producer and wholesale level, and now at the consumer side.

With all that in mind, many investors are turning their attention to 2022, and numerous items seem to be a given. The stock market’s parabolic move higher could be ready to slow down, interest rates may start to be raised in the middle of the year (especially if the inflation continues) and the speed of the Federal Reserve’s tapering of the quantitative easing bond purchases also could be accelerated.

We were interested to see the work of Dominic Wilson, the senior markets advisor and advisory director for Goldman Sachs Research, who along with his team are out with their top macro and market themes for 2022. While some are predictable, others are very intriguing, as 2022 could prove to be a very different year than the past two. They noted this: “We expect less impressive returns for risky assets in line with a more mature cycle.” Translation: we are nearing the end of the gravy train.

These are their market themes for 2022:

1) Long Convalescence – Weaker beta signals as the economy and medical recovery matures.

2) Supply Side recovery – Shortages ease which in turn helps the inflation picture.

3) Too early for the risk bunker – The pro-cyclical market trends continue with an economic recovery.

4) Structural scarcity – Commodity tightness continues.

5) Rates go higher – Central banks including the Federal Reserve start to hike interest rates

6) Pricing in the once unthinkable – The European Central Bank exit’s negative rates

7) In lower gear – China tolerates a step-down in growth.

8) Old school – More mature tightening cycle in the emerging markets, but they also see old school fiscal risks.

9) Parting ways – Disparate recovery trajectories should drive assets.

10) Usual suspects – Risks remain from Covid, interest rates, commodities and politics.

While most of these data points tend to mirror what many across Wall Street are saying, and there really are no jaw-dropping items, the key point for investors to consider is that rates could very well rise faster than expected to curb the rampant inflation.

Plus, we are less than a year out from the midterm elections, which could prove to be extremely contentious, as any sort of bipartisan spirit left Washington some time ago. Many expect the Republicans to take back both the House and the Senate, which would put the kibosh on the massive spending that is forcing the country even deeper into debt. While true infrastructure spending is desperately needed, as it has been ignored by both parties for decades, gigantic amounts of so-called social infrastructure spending could very well increase the already white-hot inflation pressures.

One thing is for sure: it makes sense for investors to review their portfolios and start to move toward the asset classes that are not massively overextended. Quality stocks, regardless of market cap, that pay dependable dividends offer investors solid total return potential. That will be the place to be if the market can squeeze out only single-digit gains after this year’s massive double-digit moves higher.

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