Stock Market Outlook: What to Expect in 2022
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Here's your money briefing for Wednesday, December 29th. I'm J.R. Whalen for The Wall Street Journal. The spread of the Omicron variant has given stock markets fits during the month of December, but stocks are still up quite a bit for the year overall. That's good news for your investment portfolio or 401k, but many market analysts believe the gains we saw on Wall Street in 2021 are unlikely to continue in 2022.
If you go back and you look at the historical returns for the equity markets being in the 9% to 10% range and on a year-to-date basis, or if you look at the last year, we've seen a return of over 24%. It's very unlikely that you're going to see the same type of returns going into the future.
Coming up, we'll talk with Gregory Davis, the chief investment officer at Vanguard, about the headwinds that are likely to impact markets next year and what individual investors should do now to protect their assets. That's after the break.
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Stock markets continue to trend higher in 2021, but in the face of rising coronavirus infections and higher inflation, how will markets react in 2022?
How did markets perform in 2021 despite Covid and inflation concerns?
Let's bring in Gregory Davis. He's chief investment officer at the investment management company Vanguard. Greg, thanks so much for being with us.
It's a pleasure. Great to be here with you.
So, Greg, the pandemic and rising inflation were two factors injecting a lot of uncertainty into the economy this year. Now, given that Wall Street doesn't like uncertainty, why did markets continue to trend higher for most of the year?
That's a great question, JR. The primary reason is there's been an unprecedented amount of fiscal as well as monetary policy stimulus that has entered into the markets and to the economy. So the fact that the Federal Reserve has been so accommodative, the fact that they've ultimately reduced interest rates to zero, went through the whole process of quantitative easing, which they are now starting to scale back, as well as the tremendous amount of fiscal stimulus that actually came across from Congress were two of the main drivers of why the markets rebounded so quickly during the height of the pandemic. So again, the fact that you had the stimulus, you had easy monetary conditions, those were all big catalysts to help return the equity markets and the broader markets to a very positive footing.
Now, are the market gains we saw in 2021 likely to continue into next year?
You know, we tend not to look at individual years when it comes to, you know, our forecast for equity market returns or bond market returns. The reality is that we saw this outsized return. And if you go back and you look at the historical returns for the equity markets being in a 9% to 10% range and on a year-to-date basis, or if you look at the last year, we've seen a return of over 24%. It's very unlikely that you're going to see the same type of returns going into the future. So what we try to always caution our investors is that, you know, take a very long-term focus when it comes to investing.
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