Investment bank predicts low stock returns in 2022 due to monetary tightening FED.
Everything is bad
In October, the US consumer price index rose by 6,2%. This is the maximum growth in recent 30 years. According to analysts, this level of inflation stimulates the Fed to start raising rates in the second half of 2022. Even if the stock market suffers in the end.
'Inflation shock' to be followed by 'interest rate shock'. Bottom line - low or negative return on assets, warned the bank.
23 March 2020, when did the pandemic start, broad market index S&P 500 fell to a low of 2237 points. By mid-August this year, the index doubled and rose to 4480 points.. One of the reasons is the soft policy of the regulator in the form of near-zero rates.. So, bond yields fell, and shares became one of the few assets, bringing profit to investors. And then the inflation rate went up..
“This is why we are bearish and believe, that capital preservation is the main theme of next year", added BofA.
In such a situation, the bank recommends investing in companies from defensive sectors: consumer goods, telecommunications and large pharmaceuticals.
BofA is extremely bearish on tech companies, who are most responsive to rate hikes, and digital currencies: "Technology and crypto - that's where the mother of all bubbles sits".
Morgan Stanley agrees with colleagues. Rising interest rates and supply disruptions are the main risks for the stock market, the bank considers: "We are thinking, that the recoilless growth of the stock market in recent 18 months in the future will change to a more volatile. Because income growth is slowing down, bond yields are rising, and companies are facing rising costs.”.
Morgan Stanley's S target&P 500 at the end of 2022 - 4400 points, on 6% below current level.
Things are good
But Goldman Sachs does not agree with such forecasts.. According to the bank, growth in corporate profits fully justifies the growth of markets: "That's what it's all about. And profit growth will continue to drive the stock market.”.
Investment bank analysts also expect rate hikes, but don't think, that it will stop the rally of stocks: "After two years of soft Fed policy, probably, will move to raising rates in July. By the end of next year, 10-year Treasury yields will rise to 2%, but the uncertainty about the policy of the regulator will subside.”.
Goldman Sachs Target S&P 500 at the end of 2022 - 5100 points, on 9% above the current level.
As a result, analysts' opinions are divided. So far everything is stable.
