US equity markets are experiencing tightening financial conditions with a 12-month risk to reward ratio on the broad indexes showing poor potential for growth at the current prices. Goldman Sachs considers stock-picking to be the best way to invest during the start of 2022.
Volatility is presently unstable. Even though on paper, the US is experiencing a lightning-quick rebound with the S&P 500 up to 16% by the end of 2021, many, like the Bank of America, expect a flat stock market through next year.
Isolated Growth Potential
The first quarter of 2022 is largely forespelled by industry experts and global credit ratings to bring an upturn for many isolated markets.
Zillow and Goldman Sachs both expect the US housing market to uptick somewhere between 13.7% and 16% between October 2021 and October 2022, heralding promising potential for many related industries.
Flattening Financial Year
The Bank of America’s Head of US Equities & quantitative strategy and ESG research, Savita Subramanian, estimates an increase in earnings of up to 6.5% for S&P 500 companies but projects that by the end of the year, the index will flatten out.
With an end-year projection of around 4,600 for 2022, we conclude that the increase in earnings will indeed come early. Subramanian favors energy, healthcare, and the financial sector, looking for consistency in cash flow and small market capitalization stocks as having the best potential.
Potential Beneficial Markets
The United States Food and Beverages markets, including grains, bakery & confectionery, dairy, meat, poultry, seafood, syrup, seasoning, oils, animal food, tobacco, and both alcoholic and non-alcoholic beverages, are also poised for strong growth during the first quarter based on market growth forecast between 2021 and 2028.
Ingredients granting health benefits, packed foods, and foods supplied ready-to-consume have the highest growth potential.
First Quarter Growth
Across the board, we expect stock prices to rise during the first quarter of 2022 due to the prevailingly high valuations. After all, the S&P 500 price-to-earnings ratio is a massive 4.9 points higher than the 25-year average at 16.81. However, J.P. Morgan analyzed the variance and found that only 40% of the returns made are due to price-to-earnings changes, which basically means that 60% of the time, the price of stocks will fluctuate for other reasons, so keep this in mind when trying to time the perfect entry point for your investments.
Bullish Forecasts Across The Board
Goldman Sachs and JPMorgan hold bullish models for 2022 but acknowledge the strong possibility of decelerating economic growth. This would mean that the most significant return would come during the first quarter to half of the year. Morgan Stanley expects a 3.7% drop from the S&P 500 Index for year-end 2022. Another indicator that leads us to believe that current minor momentum will spill over into the first quarter, but only time will tell.