Stock market’s momentum: can it continue into 2022?

The stock market ended one of its best years. Can it repeat it in 2022 with inflation worries and rising interest rates? Wall Street seems optimistic.

Chief US equity strategist at Credit Suisse, Jonathan Golub, forecasts that the S&P 500 will increase to 5,200, around 9.1%. It would be above where it finished in 2021. That would mark a healthy growth, though it is nothing compared to the index’s 28% climb during 2021.

Golub said he’s optimistic because of solid projections for economic growth. Also, he expects companies to give out more cash for stock buybacks which can raise share prices.

The Russell 2000 rallied in December after taking a loss in November. The fate of smaller companies is closely tied to the condition of the US economy since their size doesn’t protect them.

Overview of the momentum

Another critical question is interest rate hikes. After the initial Covid-induced crash, near-zero rates became the stock market’s rebound driving force. It boosted overall confidence and provided companies with access to easy money. The Federal Reserve indicated it might increase rates three times in 2022 to rein in inflation.

Even if it happens, borrowing costs will remain very low. But an environment of rising rates might shift the mood.

In the bank’s 2022 forecast for stocks, Goldman Sachs analysts said that risks are rising. At the same time, the strategists said the market rally might continue due to an expected 8.1% increase in global corporate returns. They said it should support a strong year for equity markets, contributing to the bull market this year.

Year-ahead predictions can be a snap in time. At the beginning of 2021, several policymakers expected inflation would increase sharply.

Economic data makes it more challenging to perceive the future in the middle of a global health crisis. Now it’s difficult to tell with confidence what’s coming. For now, the sentiment seems positive.