The major stock market averages opened a bit higher this morning, the first trading day of 2022. Looking to the year ahead, the stock market (after an exceptionally strong 2021), will be facing some of the same big-picture themes as last year, while some aspects are lining up differently.
For starters, corporate earnings are expected to remain in growth mode. Looking at the final quarter of last year, the estimated earnings growth rate (for the fourth quarter of 2021) is expected to be 21.3%, which would mark the fourth straight quarter of earnings growth above 20%, according to data from FactSet. For the year ahead, while the earnings growth rate will most likely slow from last year’s rate, forecasts for earnings growth are currently in the 9% range for 2022.
Also similar to last year, traders and investors are still dealing with the COVID pandemic, which has been ongoing for approximately two years. Markets are modeling material economic disruptions from COVID and the most recent variant won’t be lasting. While investors would certainly look forward to the end of the pandemic, they would likely prefer accommodative monetary policy stick around for longer. The Federal Reserve however, is in the midst of shifting policy. The Fed is currently winding down their asset purchases and interest rate hikes are expected to begin this year. According to the CME FedWatch Tool, there is a 53.8% chance the Fed will hike rates at their March meeting (a notable difference from 2021).
Keep in mind all of the above are just forecasts, and we don’t believe in crystal balls, but this is an overview of the market’s current mindset for the year ahead! Looking to the more immediate future….
The week ahead will provide us with a fresh batch of economic data. We’ll get November data on Construction Spending, Durable Goods, and Factory Orders. On Friday, the U.S. Department of Labor releases the important and widely followed December Jobs Report. Consensus estimates are the economy added about 374,000 jobs last month, and the unemployment rate edged down a tick to 4.1 percent.
As always, please don’t hesitate to contact us with any questions you may have, or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC