The stock markets are going to have a rougher ride in 2022, analysts said.
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The US stocks have had a good year.
The Federal Reserve kept interest rates low and pumped money into the economy after the downturn of 2020. The S&P 500 stock index has gone up by more than 20%.
The Fed is going to raise interest rates next year because of high inflation.
The central bank is likely to raise rates three times in the next four years, and markets think it will start in May.
Rate hikes are not bad for stocks.
Is the end of easy money bad news for stocks? History says no.
According to FactSet figures shared with Insider, the Fed has embarked on a rate-hiking cycle four times over the last 30 years. A cycle is a run of four rate increases made at no more than six-month intervals.
In the three months after the first hike, the S&P 500 has moved 1.8% lower. After six months, it has gained 4.6%, and after 12 months, it has gained 7.7%.
"Rising rates alone aren't bad for stocks," Bank of America strategist Savita Subramanian said in a note.
History may not always be the best guide. The S&P 500 plunged as the dotcom bubble burst in 2000 after the Fed started hiking rates.
Analysts are divided about what will happen over the next year.
The S&P 500 will surge to 5,300 by the end of 2022, as the recovery continues and the Fed policy remains supportive, according to Brian Belski.
Morgan Stanley thinks it will be 4,400.
Tech stocks might struggle.
The uncertainty surrounding inflation, coronaviruses, the pace of rate rises, and the US midterm elections means investors have to think harder about which stocks can thrive.
Tech stocks have been hit hard by the prospect of higher rates. The future earning potential of techs is exciting, but it looks less attractive when there are higher yields to be had elsewhere.
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US inflation is expected to stay high for a long time. Analysts said that it could hurt tech stocks by pushing investors to other companies with better dividends or that can pass costs on to customers.
"Our core picks are sectors that should benefit from further economic expansion into 2022, stabilizing China activity, and have earnings/pricing power to defend their valuations against potentially higher rates volatility," said Emanuel Cau, equity strategist atBarclays in a note.
The energy, industrials, and healthcare sectors are attractive toBarclays.
There will be more volatility.
Growth rates will cool and inflation will remain elevated in the years to come, which is why investors are preparing for a rougher time.
According to the chief investment officer at Saxo Bank, there's a 25% chance that the Fed will let inflation get out of control and hike rates faster than investors think. He said that the market would get a sell-off.
The S&P 500 is expected to end at 4,843 by Wall Street analysts, according to a November poll.
They agree that it's not likely to be a smooth ride. "Volatility is likely to increase rapidly over the next 12 months," said BofA's Subramanian.
Business Insider has an original article.
