Focus: Our investment outlook for 2022
We set out a roadmap for a rare 4th consecutive year of good returns in 2022. Our economic outlook for still high growth, a slow interest rate lift-off, and less inflation worry, is positive for equities, commodities, and crypto, if not for bonds and gold. Diversification is key, as the rally ages. We favour growth-sensitive and cheaper cyclicals, like financials and commodities. Tech is still well-supported, driving many key investment themes, from EV’s to renewables.
Growth rebound versus rising virus cases
Equity markets treaded water, digesting their early Santa rally and with some more signs of strengthening economies in US and China after both saw above expectations retail sales and industrial production. This optimism offset rising virus case concerns, especially in Europe, and continued inflation worries. The recent USD surge continued, contributing to the oil price slump, whilst crypto assets weakened sharply. See our latest presentation Here.
Silver lining of USD strength
The USD has outperformed near all currencies this year. This has been a headwind for emerging markets, commodities, and US tech. But it helps the profits of many UK, European, and Japanese companies that sell a lot overseas.
Rise of the ‘new’ conglomerates
Announced conglomerate breakups by GE (GE), Johnson & Johnson (JNJ) and Japan’s Toshiba show the quickly changing face of old-school conglomerates. They are increasingly being replaced by ‘new’ conglomerates: big techs, from Meta (FB) to Alphabet (GOOGL), and the huge and growing private equity industry.
‘Breakfast’ costs a bigger problem
A 55% surge in our ‘breakfast’ cost’ index the past year hurts emerging markets, and worse is to come. ‘Producers’ like Mosaic (MOS) benefit, whilst ‘users’ like Kraft (KHC) hurt.
Bitcoin falls below $60,000
Crypto assets weakened and Bitcoin (BTC) fell below $60,000. The long-awaited bitcoin ‘taproot’ upgrade was completed the prior weekend, and US infrastructure bill was signed. This bill included tightened crypto tax reporting requirements. Avalanche (AVAX) was one of the few notable exceptions to the broad sell-off.
Oil slumped on Strategic Reserve threat
Lower oil prices and a stronger USD held back commodities, even as agricultural prices and European natural gas rallied further. US-led threats to release oil from their strategic reserves hit prices, as they hoped.
The week ahead: Holiday season kicks off
1) Take the global growth ‘pulse’ with forward-looking PMIs in the UK, Europe, US. 2) Minutes from the last Fed meeting gives insights into the pace of policy tightening. 3) US thanksgiving holiday and ‘black Friday’ kick-off holiday spending. 4) Shortened earnings week includes results from Zoom (ZM), Analog Devices (ADI), and Deere (DE).
Our key views: Virus risks rising again
We see a positive outlook of 1) vaccine rollout and economic re-opening, and 2) still huge policy support. Risks are focused on a more aggressive Fed, with inflation high, and Europe’s surging new virus cases, hitting growth outlook again. We like equities, commodities, crypto, and are cautious fixed income, and the USD.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.