2022 Market Forecast


Happy Holiday season! Will it be a happy one for the financial markets? And what does next year hold in store?

Inflation, interest rates, Covid-19…. As 2021 winds down, big investors are closely watching a lot of uncertain issues. The truth is most of these issues have been around all year. Yet none of them kept the stock market from hitting multiple record highs in 2021. Will that trend continue next year? Or is the market volatility we saw in November a preview of more to come? I’ll share my perspective on today’s 2022 market forecast show. I’ll cover: A recap of the markets in 2021; where things stand now; my forecast for 2022; and what it all means for income investors.

By any measure, the economy has shown great resiliency since the depths the coronavirus recession. Real GDP growth hit 6-point-3 percent in the first quarter of 2021 and 6-point-7 percent in the second quarter before cooling to 2-point-1 percent in the third. Those numbers helped keep investors mostly optimistic all year, and the stock market soared. Although it finished in the red in January due to fears over rising interest rates, it quickly rebounded. The Dow hit 31-thousand for the first time in early February, and by November second, it had reached 36-thousand.

As for interest rates, that early year spike wasn’t the only one this year. From January first to the end of March, the yield on the 10-year treasury rate went from 0-point-93 to 1-point-73 percent. Rates stabilized after that and trended downward for much of the year. But then came fall and the 10-year jumped again. It went from 1-point-28 percent in early September to 1-point-7 percent by late October, before dropping down again to 1-point-35 percent by early December. Of course, interest rates are closely tied to the issue that has worried investors most all year, inflation, which hit a 31 year high of 6-point-2 percent in October.

Despite these challenges, investors have remained mostly optimistic all year. One of the main reasons is that Covid-19 numbers have trended mostly in the right direction. But as the year winds down, Covid is a growing concern again thanks to the omicron variant. On November 26th Wall Street had its worst day since February, and all three major indexes finished the month with losses. In addition to omicron, investors were also reacting to the Fed’s announcement that it might speed up its schedule for winding down its coronavirus economic stimulus.

All year, Wall Street has kept an eye on the Fed’s plans to ween the economy off quantitative easing and start raising short-term interest rates again. The timing of these moves is important for investors, since mistiming them could send the economy back into recession or cause inflation to become entrenched. In addition to inflation, Covid, and the Fed, there are several other issues impacting the markets now. They include long-term interest rates and what direction they may ultimately take next year; President Biden’s tax plan and how much it might hurt corporate growth; and global politics, particularly our ongoing tussles with China.

With all this in mind, here is my market forecast for 2022, issue by issue, starting with inflation.  Ultimately, I think the inflation we’re seeing is transitory, not permanent, but I do believe it will drag on for most of next year. If politicians can find a way to fix or improve our supply chain problems soon, inflation should get back down to a normal 2 to 3 percent by the end of 2022. If not, it could remain in the 6 to 7 percent range well into 2023.

Next, growth. I think real GDP growth will slow to a sustained rate of about 2 percent next year. That accounts for inflation and all the other challenges facing the economy as it cycles now from the recovery stage of the coronavirus recession to the growth stage. As for Covid-19 variants, I believe they’ll continue to be a challenge, but I don’t foresee another major economic stoppage because of them.

I also don’t foresee the Fed making a major blunder that panics investors next year. Their QE winddown will be cautious and their next short-term rate hike probably won’t come until late next year, if at all. As for long-term interest rates, I believe we’ll continue to see occasional spikes like we saw this year but, as I’ve said before, I also believe permanent low interest rates are the new normal. With that said, I think the yield on the 10-year US treasury will remain under 2 percent throughout 2022. These and some of the other issues I’ve mentioned will continue to spur market volatility, but I believe resilience will win out again. In other words, I expect another year of decent growth for the markets in 2022, likely in the 5 to 15 percent range. Between now and mid-year, however, I also think another significant correction of between 10 and 15 percent is very possible.

Ultimately, I think 2022 will be another strong year for income investors, similar to this year. With that in mind, now is a perfect time to review your portfolio to make sure you’re ready for whatever comes. Is your allocation still right for your risk tolerance? Are you carrying more risk than you’re comfortable with? Or maybe you’d like to take on more risk, to potentially increase your income and growth potential next year? Examine these questions with an income specialist and let them help you make 2022 a truly happy new year!


Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Arbor Financial Services of Florida, Inc. and Sound Income Strategies, LLC are not associated entities. Arbor Financial Services of Florida, Inc. is a franchisee of the Retirement Income Store. The Retirement Income Store and Sound Income Strategies LLC are associated entities.

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