Forward Thinking: 2022January 06, 2022
In this quarter’s strategy report, Forward Thinking 2022, we discuss the following:
-US economic growth is expected to be quite robust in 2022, despite the disruptions from the Omicron variant. Capital spending is expected to lead economic growth, which makes sense as companies invest in their (now in retrospect fragile) supply chains. Onshoring, near-shoring, etc. is likely a theme for US companies in 2022.
-While the Federal Reserve is expected to begin raising interest rates in 2022, the market seems to see a fairly short tightening cycle, with the terminal rate falling short of Fed expectations. Should a lower terminal rate come to pass, we expect this will be very supportive of equity valuations. With that said, we think technology may be repeating its peak and decline of 21 years ago. The technology sector’s relative EPS expectations have flattened out, as has tech’s relative performance.
-Japan is the only major economy expecting an acceleration in GDP growth in 2022, led by consumer spending. Inflation isn’t a problem, and earnings estimates forward 12 months continue to march higher. Japan was technically the weakest country in 2021 in the developed markets according to our internal calculations. We think the catalysts are in place for a better 2022 relative performance.
-We conclude with a group of spotlights on innovative companies around the world.
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