US Stocks: What can equity market investors expect in 2022

Equities are forecast to provide single-digit returns in 2022, more moderate than in 2021, while continuing to offer an attractive risk premium over bonds.

US market 2022, expectations, equities, returns, economy, inflation, risk, investor
Equity returns in 2022 should remain attractive, though they are likely to be more moderate than last year.

Where 2021 was all about Covid-19 recovery, 2022 is expected to be the start of a major transition – one demanding close attention from investors keen to make the most of tomorrow. The investment opportunities for investors will continue to emerge. However, cues from the fast changing environment need to be watched closely.

In a recent report, Credit Suisse has predicted solid demand to drive global growth – an uptick on pre-pandemic levels – and earnings growth of 7.6%, despite a labor shortage and some production issues potentially fueling inflation.

The year ahead should see a continuation of the shift toward recovery. According to the Credit Suisse Investment Outlook 2022, the global economy is expected to grow by 4.3%. Although several central banks have started to withdraw pandemic stimulus, interest rates are set to remain at or near zero in the major developed economies.

Against this backdrop, equity returns should remain attractive, though they are likely to be more moderate than last year.

Important to watch will be the sectors where the opportunities could be higher than other sectors. At 4.3%, economic growth will be above pre-pandemic levels, but not all sectors will grow equally. Areas to watch are those that lagged behind the early recovery – particularly services, such as restaurants and travel, which we expect to outperform. Our forecast for manufacturing and industrial production is good, once supply-chain problems are resolved is what the report says.

As far as US equities is concerned, Credit Suisse expects the USA to post real GDP growth of 3.8% in 2022, with a halting services rebound and ongoing supply chain problems complicating the final stages of the pandemic recovery. Inflation is expected to slow to 3.9% after an extreme spike in 2021. The USD is expected to benefit from a rate advantage over other developed market currencies as the Federal Reserve withdraws pandemic stimulus.

Overall, Credit Suisse is of the view that global economic growth looks set to be solid again in 2022, creating an environment in which equities should deliver attractive returns. However, expectations from equities may be below what has been generated in the recent past. Equities are forecast to provide single-digit returns in 2022, more moderate than in 2021, while continuing to offer an attractive risk premium over bonds. Equity segments that lagged the pandemic recovery should emerge as bright spots, as should industries that benefit from secular growth trends.

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