What does 2022 have for stock markets?

What does 2022 have for stock markets?

2021-12-21 • Updated

2021 was a year of surprises for the stock market, especially in the US. It went against all expectations. Everyone was waiting for the stocks to drop, only to see them make record historical highs over and over, and vice versa.

It won't be much different in 2022. So now let's see what will affect stock movements next year

1. Inflation and rate hike expectations

The markets understood the lesson of higher prices from first sight during 2021. As a result, companies have chosen to pass the higher costs (transportation, materials, labor, and wages) to eager consumers who want to spend what they saved during the pandemic year 2020. As a result, companies earned high profits during 2021, thanks to high inflation.

But the higher prices of goods and services to consumers, the lower the demand, resulting in weaker companies profits. When this happens, the stock markets won't be happy.

If inflationary pressures persist or increase in the first half of 2022, things could become problematic. Stocks are a good hedge against inflation up to a certain degree if it rises between 3% to 5%. However, if price growth continues above 4%, this would undermine profits and hurt stocks.

Also, hotter inflation will push central banks to tighten monetary policy and raise interest rates, thus draining liquidity and withdrawing it from the markets. Federal Reserve Chairman Jerome Powell has already stated that they may raise rates three times during 2022.

However, JPMorgan expects the S&P 500 to jump above 5,000 in the first half of 2022, representing a potential 6% rise from current levels.

2. China and its strict regulatory procedures

Beijing has taken extreme measures to curb the profits of Chinese tech giants and educational companies this year and imposed restrictions on lending to real estate developers to reduce its dependence on the sector.

Offshore Chinese stocks in Hong Kong are among the worst performers in the world in 2021. The MSCI China index is near its lowest level against global stocks since 2006.

Many of the factors that crushed Chinese financial markets will continue with us in 2022. Investors are still afraid of the Communist Party's unexpected policies, with expectations of continued crackdowns on the tech sector, after Beijing asked Didi Global to delist from the New York Stock Exchange in the United States.

In addition, the ongoing trade war, the growing division between Beijing and Washington, and the mutual banning of Chinese and American technology companies by both sides. Finally, let's not forget the Chinese real estate and housing sector crisis.

These obstacles will affect corporate profits and hurt the US and Chinese stocks hard, especially in the tech sector.

3. COVID-19 developments

Pandemic developments have been the main driver of the market for nearly two years, causing the markets to crash in 2020, then launch a historic rally on the back of vaccination campaigns that allowed economies to reopen in 2021.

With the discovery of the Delta and Omicron variants, the markets witnessed chaotic volatility in global stock indices.

Most analysts expect the virus to become a side effect in the coming year as markets and people adjust to living with it.

4. Black Swan events

The year 2022 is full of events that we might call "black swan events," sudden events with unexpected impact on the markets as they are hard to predict.

Among these events: the US midterm elections, the French presidential election, the tensions in Taiwan, the crushing crisis in the Turkish economy after the historic fall of the lira, and the persistence of supply chain bottlenecks.

Global warming and the transition to clean energy are other things that traders may need to consider. In addition, high carbon prices and environmental taxes on companies that produce harmful emissions will increase production costs for industries, which may negatively affect the profits of some companies and stocks.

Finally, do not forget that high valuations of stocks create fragile markets, easily affected by the slightest events. This is what we witness in the stock markets. The value of some shares has become exaggerated and does not reflect their fair value. It's like forming a new bubble, which may explode because of the reasons mentioned above. So, what will happen if more than one reason comes together? Or will the stocks continue to go against the trend?

Similar

Walmart earnings outlook
Walmart earnings outlook

Walmart is one of the biggest retail corporations in the US, with $244 billion in total assets. Does it worth buying amid rising prices and supply concerns that shatter the world economy?

Best Stocks to Buy in April! 
Best Stocks to Buy in April! 

As April approaches, investors are searching for good opportunities in the stock market. There are two booming industries that look positive in the coming period; electric vehicle (EV) stocks and banking stocks.

Latest news

US Stock Market Recovers
US Stock Market Recovers

What happened? US stocks ended sharply higher on Thursday, May 27, after a 7-week losing streak…

What to trade on May 30-June 3
What to trade on May 30-June 3

Next week, we expect the BOC rate statement, the OPEC+ meeting, and the Nonfarm payrolls release. Let's look at the opportunities in detail! 

Deposit with your local payment systems

Be on top of your game

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera