Here are a few things to watch out for as we head into the new year.
An expensive and volatile year: If you think the cost of goods are expensive now, expect them to rise even further. Notice how the “transitory inflation” narrative of 2021 is no longer being told. It’s now just about rising inflation.
We haven’t seen inflation like this since the 1970s…
Big banks see the three biggest themes of 2022: If you read the Bank of America, BlackRock, JPMorgan, and Morgan Stanley 2022 forecasts, you’ll find three big themes:
- Inflation will continue rising until supply issues ease (in contrast to the “Austrians,” they see supply as the primary driver).
- With interest rates still low and 2021 profits high, corporate spending may see an uptick.
- Covid-19 remains the wild card—it’s impact on the global economy will be as unpredictable as each country’s response to it.
The best case scenario is that “monetary policy tightens less than investors fear,” according to Morgan Stanley, while supply chain issues ease, corporate spending contributes to economic growth, and global health improves.
The worst case scenario is that new Covid variants disrupt supply chains once again, according to BofA, driving inflation even higher.
The political climate is one huge unknown: The geopolitical climate and (obviously) the domestic political climate seems super sensitive to abrupt changes. Anything can flare up, and the market’s response to it is as unpredictable as it’s ever been.
Washington’s anti-oil agenda may see momentum in the (legacy) energy sector pull back: as Energy ends the year as the strongest sector performer, President Biden’s limitations on oil exploration and production may slow the sector well into 2022.
Talking about sectors, here’s how they’ve been performing in 2021:
Source: Sectorspdr.com (YTD as of 12/29/21)
Home sales may continue to rise: The median price for a new home hit a high of $407,700 in October. That’s a whopping 17.5% increase year over year. Might housing prices continue to advance despite the inflationary swelling? Many experts think so. But consumers are not that predictable.
Falling consumer confidence due to inflation and omicron fears may significantly weaken spending: and consumer spending drives 70% of GDP.
Will gold hold its safe haven status in 2022?: Newmont mining, the world’s top gold producer, is ramping up to produce 7.5 million gold equivalent ounces in 2022; an anticipated capital expenditure of around $2.13 billion. The company is citing inflation and omicron fears as driving factors for the price of gold. However, others warn that gold and silver may have lost its status as reliable inflation hedges. Investors may be looking elsewhere instead, such as bitcoin and REITs.
The rise of NFTs: 2021 brought NFTs to the world’s stage. These “non-fungible tokens” (NFTs) were initially designed to formalize digital art ownership. In fact, Sotheby’s raised up to $17.1 million in NFT auctions (and that’s just one segment of the entire NFT market). But as we enter 2022, NFTs will likely expand to other types of ownership, such as digital property and real estate.
As we close out 2021 and prepare to start the 2022, there is certainly a lot to think about.
Enjoy your holidays and have a Happy New Year!
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