6. I do not believe that the Fed will hike rates in March. It’s just too soon, especially given the spread of the Omicron variant. However, the Fed seems eager to start reducing its balance sheet.
7. I expect cyclical stocks to outperform defensive and secular growth stocks in the US early in 2022 in anticipation of a post-Omicron recovery, but that for the full year, growth will outperform.
8. US inflation is likely to rise further, especially given the spread of the Omicron variant and its potential impact on supply chains and labor, but it should peak by mid-2022 and then slowly decelerate.
9. The 10-year US Treasury yield will end 2022 higher than it is now, in my view, as the Fed begins to normalize monetary policy.
10. Finally, I expect to see even more interest in environmental, social, and governance (ESG) investing in 2022, driven in part by a dramatic acceleration in electric vehicle adoption in the US, Europe, and China.
Investment resolutions for the new year
Here are four investment resolutions to consider for 2022:
1. Let your investment policy statement be your North Star. For some, that means actually creating an investment policy statement. For others, it may mean revisiting it at the start of the year to ensure it still reflects their goals and current needs. (For example, a college may need to revise the annual amount it takes from its endowment for spending from 4% to 5% to reflect increased student financial aid needs.) Either way, the key is to do it in a “vacuum” rather than in response to a market event. That helps take the emotion out of decision-making. After all, some of the investors who were most negatively impacted by the Global Financial Crisis and the pandemic were those who got out of markets when stocks started falling, only to miss out on substantial rebounds. Investment policy statements help investors, both institutional and individual, stay the course and keep focused on long-term goals.
2. Be well diversified. For many investors, it’s not enough to just have exposure to stocks and bonds — that leaves out the potential benefits of alternatives. And within all three major asset classes, it’s important to be well diversified. For example, within both equities and fixed income, many investors are under-exposed to emerging markets and may benefit from increased exposure.
3. Rebalance your portfolio. Make sure you rebalance your portfolio at least once a year. That enables you to take profits and ensure you are within the parameters of your investment policy statement.
4. Keep some cash on the sidelines. This gives you “dry powder” to deploy during substantial stock market drops. You may want to dollar cost average in the case of a stock market correction, although recent drops have been very short-lived so there may not be a lot of time to deploy a dollar cost averaging strategy.
A wish for 2022
Sadly, 2021 ended on a down note with the death of actor Betty White, a comedic icon for many generations, just a few weeks short of her 100th birthday. However, we can learn so much from the life she led. Here’s hoping that in 2022, we all channel our inner Betty White by living life to the fullest. We will finish the year older than we are today, but as Betty pointed out, everything gets better with age — except a banana. Here’s to a wiser, better 2022 filled with joy.
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