Snow shaker predictions for the markets (and the investor) in 2022
If you read the broadsheets over the last few days and cared to enjoy the titillation of the money pages, you will have seen such headlines as The investments that will make you the most money in 2022 from the Telegraph and Predictions for 2022 from the FT writers.
So, I have retrieved my Christmas snow shaker from the decorations destined for the attic to see what I could also predict ....
The second act of a drama
Now, it would seem to be daft to look at these past 12 months in isolation. They were, rather, the second act of a drama that began early in 2020, the precipitant of which was the greatest global public health crisis in a hundred years.
The world elected to respond to the onset of the pandemic essentially by shutting down the global economy - placing it, if you will, in a kind of medically induced coma. We experienced the fastest global economic recession ever, and a one-third decline in the S&P 500 in just thirty three days.
The world banks responded immediately with a wave of fiscal and monetary stimulus which was and remains without historical precedent. This point cannot be overstressed: we are amid a fiscal and particularly a monetary experiment which we have never seen before. This renders all economic forecasting—and all investment policy based on such forecasts - hugely speculative. I infer from this that if there were ever a time to just put our heads down and work our investment and financial plan - ignoring the noise - this is surely it.
If 2020 was the year of the virus, 2021 was the year of the vaccines. Vaccination as well as acquired natural immunity are in the ascendancy, regardless of how many more Greek-letter variants are discovered. This fact, it seems to me, is the key to a coherent view of 2022.
In general, I think it most likely that in the coming year
(a) the lethality of the virus continues to wane,
(b) the world economy continues to reopen,
(c) corporate earnings continue to advance,
(d) the Central banks will begin draining excess liquidity from the banking system, with some resultant increase in interest rates,
(e) inflation subsides somewhat, and
(f) barring some other unknown variable - which we can never really do - equity values continue to advance, though at something less (and probably a lot less) than the blazing pace at which they've been soaring since the market trough of March 2020.
Do not mistake this for forecasting
Please don't mistake this for a forecast. All I said, and now say again, is that these outcomes seem to me more likely than not. I'm fully prepared to be wrong on any or all of the above points; if and when I am, my recommendations to you will be unaffected, since our investment policy is driven entirely by the plan we've made, and not at all by current events.
With that out of the way, allow me to offer a more personal observation. These have undoubtedly been the two most shocking and terrifying years for investors since the Global Financial Crisis of 2008-09 - first the outbreak of the pandemic, then Brexit, next the amazing North American election, then the pandemic's second major wave, and most recently an inflation spike. You might not be human if you haven't experienced serious volatility fatigue at some point. I know I have.
But like that earlier episode, what came to matter most was not what the economy or the markets did, but what the investor himself/herself did. If you fled the equity market during either crisis - or, heaven forbid, both - your investment results seem unlikely ever to have recovered.
If on the other hand you kept acting on a long-term plan rather than reacting to current events, positive outcomes followed.
It’s always been the same.
I expect it always will be.