The majority of analysts believe that market participants should brace for four potential black swan events next year. These risks may also significantly undermine the stock market. To weather the storm, Forbes recommends investors take into account recommendations given by large banks.
However, analysts have rather different opinions on this matter. Investment outlooks for the year 2022 also give various scenarios. Forex strategists at Jefferies are confident that the US stock market will retain its uptrend through 2022. At the same time, Morgan Stanley believes that the equity market will eventually fall and the S&P 500 index will slide by 6.4% or 4,400.
The opinions are polarized mainly due to current market uncertainty. Bank managers refrain from making predictions as they do not know how the world's central banks will react to sky-high inflation. Besides, the Omicron strain is also a wild card. It is the man black swan for the stock market in 2022. However, its negative impact is expected to be moderate. According to virologists, Omicron is more contagious than the Delta strain but the mortality rate from it is lower.
The second black swan event may be rising inflation whose impact on the global economy is huge. The yearly inflation in the US totals 6.2% and in Europe, it amounts to 4.9%. These indicators are extremely high. This is why central banks are preparing to raise the interest rate. This step will inevitably trigger a fall in the bond market. However, it seems the only tool that may cap inflation and boost economic growth.
Experts also warn of sudden changes in the Chinese economy. They are the third black swan. If the debt crisis in the property market, fueled by Evergrande, gets out of control, it will adversely affect both the global and local economies. The deterioration of relations between China and the United States may also pose a threat to the economy as this conflict will have repercussions across the world.
The fourth black swan may be environmental problems that could bring down the income of investors. In the next 10 years, oil and gas companies will have to go green to adapt to new realities. Currently, oil producers are trying to win back favor with investors by discovering new drilling rigs. They may succeed if demand for oil remains high. However, now, it is gradually weakening. A decrease in demand for coal and other fuels will spark demand for gas. As a result, there will be a spike in energy prices, experts believe.
To hedge portfolios from risks, traders need to include dividend stocks of companies with reliable balance sheets and constant cash flow. Analysts at Credit Suisse stress that the current investment portfolio should contain 40-60% of the shares of the largest companies. During the year, experts recommend allocating 30-60% to bonds.
What is more, market experts doubt that traditional ways to manage risks will be of much use, e.g., investment in gold. They recommend reducing its share in the portfolio to 10%. Gold is projected to depreciate significantly in 2022.
As usual, investors who choose IT stocks are sure to get big returns. Analysts also advise investors to pay attention to suppliers of equipment for the production of semiconductors - Applied Materials, KLA Corp, and ASML. Such companies benefit from the global shortage of semiconductors. Therefore, next year they may hold the upper hand in the market.
