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Will There Be A Stock Market Correction In 2022 | Stock Market Prediction

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  • Post last modified:May 16, 2022

Stock Market Prediction 2022

Since the post-COVID-19 pandemic, markets have gone to a new high and this bullish trend was very much spotted throughout 2021.

Although this performance of the stock market is creating a kind of joy in some investors’ minds, they are also feeling nervous regarding the market trend in 2022.

Governments across the world are trying to stabilize the economy which has seen a bad side during the pandemic.

But, what is waiting for us in 2022? Since 2019, S&P 500 has sored almost double with nearly 97-98% returns. Nasdaq and Dow have also gained some record-breaking numbers.

Our team has discussed with various analysts to get an idea about the US equity market condition and incorporated that in this guide on stock market prediction 2022.

Stay tuned to know more and build an overview of the stock market predictions for 2022.

Is Stock Market Correction going to Happen?

The US stock market indices have seen a new record recently and made a rich portfolio for thousands of investors.

Higher earnings of the companies than expectations and lower capital costs are the main reasons for such incredible stock market gains.

But, will this US stock market Bull Run continue in 2022 too!

We have talked with various analysts and came up with mixed views from them.

As per Goldman Sachs, they are much positive about the US equity market in 2022. As per their S&P 500 forecast for 2022, the index will reach 5100 by the end.

Goldman Sachs chief US equity strategist, David Kostin clearly mentioned that the Bull Run will continue.

Amplify Trading MD, Piers Curran mentioned that the inflation will remain high than expectations, and central banks are becoming hawkish.

stock market prediction

As per some analysts, the monetary policy has become much loose and the central banks need to slam on the brakes. Unless that is done, the massive pullback in stocks can’t be noticed.

On the other hand, Chris Harvey predicted that the market indices can be back in the race next year than this year.

Moreover, he also expects that from the second quarter of 2022, there can be a major correction in the market due to a more hawkish Fed and decelerating growth.

Thus, it can be very much inferred from the analysts that the bullish trend of the market will sustain for some more months in 2022 but there can be some correction in the second half.

Stock market predictions for 2022 | S&P 500 forecast 2022

We have also discussed this with various analysts and reached some basic conclusions based on their opinions.

Some analysts have predicted the S&P 500 forecast 2022 to be nearly 15%. If we go sector-wise analysis, then we felt that the communications industry can be the major player in the next year with the capacity to grow by 18%.

The smallest uptrend can be seen in the financial industry with a tendency to grow up by 7.6%.

This is the basic S&P 500 forecast for 2022 that can be noticed as per our research. But, it’s better to go with your own research always before investing.

Factors affecting the US equity market 2022

Various factors are playing in the ground that can affect the overall stock market growth in 2022 either positively or negatively.

stock market prediction
  1. Inflation:

There can be upward price pressures if economic imbalances start to introduce in the demand and supply.

Inflationary pressures are dwelling in the country since the market has taken a huge upside turn after the pandemic downtrend.

US inflation rates have already touched a 30-year high in October which is up by 6.2% from the last year. This figure has been found by the US Bureau of Labor Statistics which came up in the news since it is the largest 1-year increase after 1990.

Though most analysts are positive about the fact that the US inflation rate may fall back in 2022, this factor can’t be ignored. Inflation rise can be painful for both companies and consumers.

It’s because higher inflation will cause a spike in the input prices and therefore consumer purchases can decline to result in lower profit margins for the businesses.

If the profit of businesses declines, that can cause the economy to go on a negative line since they can stop hiring to reduce employee costs which is a part of their liabilities.

An inflation spike can impact the stock returns positively or negatively depending on the investor’s technique to position their portfolio like hedging and also somewhat on the government’s monetary policy.

Overall, there can be much volatility in the stock market during higher inflation rates as can be noticed from the historical data.

  1. Monetary Policy | Interest rates hike 2022:

As we discussed in the above section, inflation rates are higher in the US. So, interest rate hikes can happen within a short time by the US Federal Reserve (Fed).

If inflation continues to increase, then to sustain the economy of the country, Fed can bring changes to the monetary policy by lifting up the interest rates.

Fed has already announced that they will start declining the monthly asset purchases in December 2021. That can lead them to raise interest rates next year. Lower interest rates helped the investors to keep cash in hand and invest their inequities.

But, if interest rates increase, then that can have the opposite effect because investors would like to earn more than keeping liquid cash in hand.

On the other side, this will also lower the profit of the businesses due to an increase in borrowings.

  1. Fiscal Policy:

During the COVID-19 pandemic, the US government introduced several fiscal stimulus programs to revive the economy.

This caused an increase in consumer demand and also higher profits for the businesses.

Now, 2022 being the first normal year after the pandemic, Fed can accelerate the interest hike. Had this been the case, business profits may go down.

Also, the revenues of the companies can decline due to higher prices that they need to demand from consumers.

Value vs Growth stocks prediction

In the stock market, these two types of stocks are quite prevalent – value stocks and growth stocks. The main difference between them lies in the cash flows they have.

The value stocks generally have strong current cash flows which will decline over time while the growth stocks are those with lower cash flows but can increase with time.

From the historical data, it has been seen that growth stocks are negatively impacted during high inflation or interest rate hikes.

The same conclusion can also be inferred from the Discounted Cash Flow (DCF) method.

stock market prediction

Hence, growth stocks are inversely proportional to the high inflation while value stocks are directly proportional.

Thus, it can be better to invest in value stocks if inflation remains high during 2022 or Fed increases the rates of interest.

But as per some analysts, growth stocks can also regain momentum as they underperformed over the past few months.

So, the best part is to balance your portfolio with both types of stocks and also hedge some portion of your portfolio to maintain equilibrium during the market correction.

Stock valuation is higher

We have discussed various factors and all these factors have enhanced the stock valuation.

Hence, the PE ratio (Price-to-Earning ratio) has become much higher than the average PE ratio over the past 25 years.

This will play a major role in the stock returns for the next few years.

J.P. Morgan predicted the S&P 500 forecast 2022 and beyond can yield flat annualized returns for the next 5 years.

stock market prediction

However, don’t get upset about this and start selling all the stocks in your portfolio. It’s because as analyzed from the historical data, 40% of stock market returns depend on the PE ratio while the rest 60% is driven by other factors.

And, frankly speaking, it is not at all possible to predict the future of the stock market. Thus, it’s always better to analyze yourself before investing in any stocks.

Final Thoughts…

We hope that you have enjoyed this series on the stock market prediction 2022.

At last, we want to highlight that you have no hand in the market whether it goes up or down.

The stock market will never be bullish or bearish constantly, it will go up and down.

Hence, try to focus on what you can control. Systematic risk can’t be controlled as it mainly depends on the market conditions and various factors that we discussed above.

So, balance your portfolio and try to gain as much as possible with hedging techniques when the market is going down.

Thus, try to acquire knowledge as much as you can and also implement those strategies to avoid loss and earn consistently from the stock market.

Therefore, don’t get discouraged if the market is weaker at some point in time. Try to accumulate good stocks, do proper research from time to time, and enjoy the power of compounding.

Happy Investing!