(The author is Editor-at-Large, Finance and Markets at Businesshala News. Any views expressed here are her own)
LONDON, Nov 17 (Businesshala) – You almost have to re-read the small print for a reminder that stocks could fall sometime again.
The frequently used compliance disclaimer that the value of your investment can go down as well as up is largely ignored by stock investors to this day.
And after a three-year winning streak, fund managers are clearly betting on another.
Bank of America’s 2021 Monthly Fund Managers Survey shows U.S. equities as the most overweight in eight years — with 8% of 388 respondents, managing more than $1 trillion in assets, being largely underweight stocks. claim to.
And a weekly JPMorgan client survey showed 60% plan to add even more equity exposure in the coming days and weeks.
As the investment outlook for 2022 emerges from banks and funds, the basic rationale for sticking with stocks is pretty simple.
If a global pandemic and the sharpest economic contraction in a generation didn’t spark a negative year for expensive equity indices – many wonder what will happen right now.
Let liquidity ride until it finally ends, even then there seems to be a consensus.
Central banks are already cutting emergency aid with inflation on the radar – but the last place you want to be is in bonds unless you think we’re headed for a recession within 12 months.
It’s also hard to argue with the fact that stocks don’t often go down anyhow throughout the calendar year. The S&P500 has ended in only one red in the four years since 1960.
For a more diversified spread of equity risk, such as MSCI’s All-Country Stock Index, this has been the best rolling three-year period since the dot.com bubble 20 years ago and only 4 down years since then. The index has doubled precisely from the deep but brief pandemic trough of March 2020.
Aside from the famous boom and bust at the turn of the millennium, that global index’s 34-year history hasn’t had a better three-year period for stocks.
Given those metrics, overwhelming consensus and a clear lack of options, you’re inclined to sit down and take notice when one of the fastest houses on Wall St.
This week Morgan Stanley – one of the most vocal and accurate Wall St. forecasters of a V-shaped market recovery since the pandemic hit last year – said it would expect the S&P 500 to drop about 6 percent from current levels by the end of next year. % looks down.
That’s hardly a sign of walking for the hills — but any negative sign on stock market forecasts is noteworthy these days and only the 2008 banking collapse produced the most negative year for the S&P 500 since the dotcom crash.
Morgan Stanley’s argument was not alarming, preferring to emphasize growth and the ‘normalization’ of asset prices.
It spoke of the coming of “training wheels” in the post-COVID recovery next year as policy supports are gradually removed and financial assets have to balance on their own to adapt to change.
“Markets are facing several ‘common’ mid-cycle problems: improved growth being hit by higher inflation, policy changes and more expensive valuations.”
Hedging its call in the context of tight credit and nerves about financial conditions, it sees the 10-year Treasury yield ending 2022 rebound back to 2.10% from 1.6% today — originally only Where it was in mid-2019.
Yet these are relatively anodine prediction outliers.
Goldman Sachs expects another 9% on the S&P 500 through next year, sees the JPMorgan index adding at least 6% by the middle of next year and UBS sees it up 6% by the end of 2022.
Of course some of this is about timing – when does the wind change on policy mixed with still largely unknown macro variables around inflation and even the pandemic.
Univision Portfolio Manager Olivier Marciot said he is cautious about the year ahead, but remains exposed to riskier assets given central bank policy.
“History has demonstrated that trying to estimate the actual change in position by dire adjustments to financial conditions usually yields disappointing results.”
What’s more, forecasts are already on the table from where we stand in November. And a lot can happen in the illiquid markets at the end of the year when investors are itching to bank profits.
Already the dollar is rising sharply on a mix of inflation and interest rate concerns, but between Western allies and Russia and China – from the border of Belarus to Ukraine and Taiwan, and even in space – Politics is shaking. And a rising dollar effectively automatically strengthens the world’s financial conditions.
Military flashpoints or related energy price shocks and electrical blackouts in Europe and elsewhere can be even more disturbing than usual.
On New Year’s Eve, perhaps Morgan Stanley’s call for 2022 will start to look even brighter.