Outlook 2022: Pre-election Year Comes With Lots of Market Uncertainty

Outlook 2022: Pre-election Year Comes With Lots of Market Uncertainty

Proshare Nigeria Pvt. Ltd. The Equity Markets in 2021

The global economy continues its recovery from the COVID-induced recession in 2020 as the breakthrough with Covid-19 vaccines that 2021 would be a year of recovery; however, due to unstable vaccination rates, growth rates vary across regions as new mutations of the virus emerged and hampered the positive outlook for recovery in some advanced economies. The world begins to view COVID-19 as endemic, existing policies shaping the global growth paradigm will start to shift, impacting markets in the process with higher expectations for positive performance in the markets. Cyclical stocks in the hospitality, Oil, gas, tourism, transport, Construction/Real Estate, and retail sectors that were hardest hit in 2020 recorded some level of rebound as the economy opened further.

US Markets

The US equity markets recorded solid gains for the year on the backdrop of renewed economic activity and improved corporate earnings despite new strains of COVID-19 during the year. As vaccines and vaccination rates improved, one key trend that defined the performance of many stocks was a change in sentiment that led investors to look at different parts of the markets leading to a portfolio rebalancing. Tech stocks that benefited from the 2020 surge due to technological innovations that helped companies and individuals adapt to the ever-changing landscape of the COVID-19 pandemic recorded losses in 2021 (except for Google and Meta Platforms) while cyclical stocks performed better.

It was a year of quantitative tightening, alongside other fiscal and monetary adjustments on the international scene as the US Fed the central bank said it will accelerate the reduction of its monthly bond purchases. At a speech in August 2021, Fed Chair Jerome Powell said it "could be appropriate to start reducing the pace of asset purchases this year." Powell stated that the economy has met "substantial further progress" conditions, prompting the Fed to evaluate a taper.7 In the following press conference, he added that the tapering would likely conclude by the middle of 2022.

The markets saw some volatility at different stages of the tapering announcement, which we refer to as "Taper Tantrum" because rising yields can impact stock markets as more attractive yields compete with stocks for investors’ money. However, despite all the concerns about the Federal Reserve reducing its asset purchases and allowing interest rates to rise, short-term rates remained exactly where they started the year while stocks moving to record […]

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