It's hard to believe, but 2022 is already less than a month away. Every December, I decide to have a little fun and come up with a list of five predictions for the stock market in the following year that aren't obvious and often aren't very popular.
Obviously, nobody has a crystal ball and I'm certainly not an exception, so take all of these with a big grain of salt. But I personally think these things have a higher probability of happening than most experts seem to think.
How did I do with my 2021 predictions?
I made four predictions for 2021, and even though there are still a few weeks left in the year, let's take a look. I believe in accountability, so here's a rundown of where I was right and wrong:
- I predicted that the economic reopening would happen earlier than expected, especially regarding the widespread availability of vaccines (which many didn't think would happen until fall 2021). COVID-19 vaccines were generally made available to whomever wanted one by May, and most businesses were reopened before summer, so I'd call this one a success.
- I predicted that "reopening stocks" would outperform the S&P 500, which has generated a strong 25% total return so far in 2021. Generally speaking, I was right. I specifically called out Ryman Hospitality Properties (NYSE: RHP), Delta Air Lines (NYSE: DAL), Simon Property Group (NYSE: SPG), and Empire State Realty Trust (NYSE: ESRT). Only one (Simon) has outperformed the market this year, so I'll call this one wrong.
- I predicted the S&P 500 would decline in 2021. The exact opposite happened.
- I predicted oil would be over $70 per barrel at the end of the year. As of Dec. 1, it is hovering right around that level. Too early to call this one.
5 bold predictions for 2022
With those in mind, here are some new predictions for 2022 that I think have a solid chance of happening.
1. Value stocks will finally have their moment
Over the past decade, growth stocks as a group have nearly doubled the total return of value stocks. And growth has generally outperformed in any individual one-year period in that timeframe. But I feel that 2022 will see that trend reverse.
There are a few reasons I think so. As I'll discuss later, interest rates are likely to rise, and this can be a negative catalyst for growth stocks. Most so-called "reopening stocks" fall into the value category, and as the pandemic (hopefully) winds down, they could be big winners. And last but not least, growth valuations have just run a little too hot in recent years, and I feel they're due for a pullback, especially in an inflationary environment.
2. The Fed will raise rates quickly, but inflation will remain
The most recent projections by policy makers suggest that there will be either no or one interest rate hike in 2022, but I'll make the bold prediction that the Fed will hike rates at least twice. Inflation isn't looking as transitory as previously thought and could prove difficult to control as we head into 2022. The median inflation expectation in 2022 by FOMC members is 2.2%, but I wouldn't be surprised to see it run at 3% or higher.
3. The housing market will have another double-digit gain in 2022
In the third quarter of 2021, home prices in the U.S. posted their largest gain ever, rising by 18.5% year over year. And some areas of the country saw even steeper gains. While many experts think the rise in home prices will cool off, I'm not so sure. In fact, I think we'll see another year of double-digit gains in 2022.
There are simply too many catalysts that could keep pushing prices higher. For one thing, the conforming mortgage limit is set to increase by about $100,000 next year, which will make it easier for buyers to finance homes in a rising market. Supply and labor constraints continue to limit home builders' ability to keep up with demand. And mortgage rates remain near record lows and don't show many signs of reversing course.
4. SPACs will make a comeback
I've saved the two boldest predictions for last. First, I think we'll see a resurgence in special purpose acquisition company (SPAC) activity in 2022. To be clear, I don't think we'll see dozens of new blank-check companies hitting the market weekly, like we did in early 2021, but I don't believe for a second that this IPO alternative is dead. There are still 549 active SPACs with about $150 billion in capital looking for deals, and plenty of innovative growth companies looking to go public.
5. Cryptocurrencies will have a rough year
Some would call this my boldest prediction. After a surge in cryptocurrency interest in 2020 and 2021, many digital assets are at or near all-time highs. Since the beginning of 2020, Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are up by 690% and 3,450%, respectively. I predict that investor and institutional interest in cryptocurrencies will take a step backwards in 2022, and both Bitcoin and Ethereum will decline by 20% or more.
These are meant to be bold predictions
As a final thought, it's worth emphasizing that these are meant to be bold predictions, so I completely acknowledge that the probability that I'll be right with all five of them is quite low. Even so, all are completely plausible, and only time will tell.
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Matthew Frankel, CFP® owns shares of Empire State Realty Trust and Ryman Hospitality Properties. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool recommends Delta Air Lines, Empire State Realty Trust, and Ryman Hospitality Properties. The Motley Fool has a disclosure policy.