Wall Street strategists predict expensive, bumpy 2022

·2 min read

Wall Street strategists see the shape of 2022 pegged to three main hooks: inflation, corporate spending and the pandemic's path.

Why it matters: The unusual conditions of the past two years will likely lead to more mixed signals next year.

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  • “Cutting through confusion is really key [to] navigating markets in 2022,” Wei Li, global chief investment strategist at BlackRock Investment Institute, said on a call earlier this month.

A review of 2022 outlook commentary from JPMorgan, Bank of America, BlackRock and Morgan Stanley reveals consensus on three key themes.

1. Inflation is here to stay until supply pressures ease.

  • “CPI inflation ... should ease on average in 2022 as oil prices recede, supply chain difficulties diminish and government aid to low- and middle-income households dries up,” the J.P. Morgan Asset Management team writes.

  • Central banks will have to react to fighting higher inflation without "destroying [consumer] demand," says Jean Boivin, head of BlackRock Investment Institute.

2. Companies' capital expenditures are set for a further comeback.

  • As more consumer spending shifts to services, businesses will get a breather and restock inventories, says J.P. Morgan.

  • Fueled by strong profits and low-interest rates, capital spending and inventory rebuilding should contribute to growth, J.P. Morgan adds.

3. Global cases of COVID-19 will continue to dictate uneven and unequal recovery patterns.

  • Emerging markets remain more vulnerable to economic shocks, Bank of America’s chief investment office team writes.

The big picture: A best-case scenario is one where "monetary policy tightens less than investors fear," while strong capital expenditure and improving supply chains and global health continue to push growth, according to Morgan Stanley, which has an above-consensus outlook of 4.7% global GDP growth for next year.

  • A worst-case scenario: New variants could become a force that slows growth down as supply chains remain locked up — driving inflation even higher, says Bank of America.

What to watch: One known unknown — the political climate.

  • Attention to geopolitical developments (measured by frequency of financial media and brokerage reports) is near a four-year low, according to BlackRock.

  • “If something were to flare up, it could really take markets by surprise," says Li.

Editor's note: This story was originally published on Dec. 20.

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