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Monday, January 3, 2022
Welcome back from your staycation. It’s time to make money.
The markets enter the New Year in a great mood.
Strategists are rocking 5,000-plus calls for year-end S&P 500 targets. What pandemic (said tongue-in-cheek)? Profit estimates by analysts remain on an uptrend, as if to laugh at the real threats of stubborn inflation. Stock valuations are well above historical norms ahead of interest rates from the Federal Reserve. Just money chasing money at this point, right? The pipeline of IPOs and deals look strong, too — which could help to keep a bid under many companies.
Even history says 2022 will be another banner year for stocks.
Truist Advisory Services co-chief investment officer Keith Lerner found that going back to 1950, when the S&P 500 had a total return of at least 25% in a year, stocks usually rose in the following year. The outcome during that 71-year stretch: stocks advanced 82% of the time, or 14 out of 17 instances.
The average gain: 14%.
Not too shabby by any stretch of the imagination. So with these feel good vibes in the markets to kick off the year, I offer up a couple predictions. The tie that binds these predictions: none of them are buffoonish. I am not making them to get on TV (that is my day job, after all) or justify a $300,000 Substack stipend for an extra premium newsletter. Nope, these are things I think could actually happen and you could consider as part of your investing process.
Stocks don’t go up forever: There is likely to be at least one 20% market correction in 2022. Chat up any market pro and they will acknowledge being worried how a stock market trading at record multiples and driven by a handful of tech stocks (Apple, etc.) will react to an increase in interest rates. Those increases are coming, people. Now this doesn’t mean you go to cash in January. What it does mean, however, is to begin doing homework on potential defensive investments in your portfolio.
Housing will stay hot: Home prices will probably go up another 10% (at least) in 2022 as buyers try to outrun higher interest rates at a time of incredibly low housing inventory. It’s no small wonder that shares of Sherwin Williams and Home Depot enter 2022 trading near record highs. Or, 3G Capital (who usually invests in food companies — see Restaurant Brands and Kraft Heinz) just shelled out a 70% premium …….