What’s Going On Here?Stocks could be set for another strong year in 2022, even if company valuations end up going nowhere fast. What Does This Mean?The key US and European stock indexes – the S&P 500 and the Stoxx 600 – climbed 30% and 22% respectively this year. And Goldman Sachs thinks both will carry that momentum into next year, estimating that the S&P 500 will be 9% higher and the Stoxx 13% higher this time next year.
That’s all well and good, but the investment bank also argues that the S&P 500’s “price-to-earnings ratio” – a key valuation measure – won’t budge much. See, it’s true that shoppers are more likely to be out and about next year, pushing up expectations of companies’ profits and, by extension, their valuations. But it’s also true that any boost this provides could be offset by interest rate hikes, which would make safer investments more appealing at stocks’ expense, in turn lowering stocks' valuations. Why Should I Care?For markets: Is this tech’s swansong?
Analysts still have their reservations about the US stock market, mostly because just 10 companies – including Apple, Microsoft, and Amazon – are responsible for around 30% of its value. If these stocks were to collapse, then, the entire index could too (tweet this). This is nothing new, admittedly, and investors have blithely continued to buy their shares for years. But 2022 could finally be the year they fall out of favor…
For you personally: Goldman’s recommendations.
First up, buy into companies – think consumer staples, which sell everyday essentials – that can pass price rises onto their customers without losing them to the competition. Second, avoid those with high workforce costs, since those costs are only going to get higher if wages keep rising. Third, “growth” stocks – those of fast-growing companies – are probably fine, but avoid unprofitable ones, which will be most at risk if interest rates rise. | 