The start of each New Year is often a time for optimism, typically viewed as a chance to set new goals and map out a plan to achieve them. For investors, 2021 proved to be a profitable year, with all three of the U.S. market’s primary indexes — the Dow Jones, NASDAQ, and S&P 500 — setting record highs over the past year. But the question on the minds of many is whether or not that record growth will continue in the coming 12 months.
As we enter 2022 — the third calendar year since the COVID-19 pandemic’s onset — investors are carefully monitoring trading trends that could shape the financial future of the coming New Year. Economies and markets the world over are still feeling the ripple effects of the pandemic, not the least of which include rising inflation and continued disruption to global supply chains, exacerbating worldwide slowdowns in many consumer-centric sectors. These concerns have left many investors pondering their trading strategies going forward into 2022, and if the strategies used over the year prior will continue to provide profitable returns.
Recently, we chatted with Bryan Cannon, CEO and Chief Portfolio Strategist at Cannon Advisors, and asked him to help shed light on how these concerns may or may not affect trading strategies in the market as we move into the coming year. Continue reading on to find out what he had to say.
Concerns regarding COVID and inflation
“One of the foremost concerns that comes to mind is the emergence of the new COVID-19 variant, Omicron,” said Cannon. “This new variant has thrown a proverbial wrench into economic recovery and relief efforts the world over. Because of its capability to spread so rapidly, many countries are reinstating travel restrictions which is bound to affect the travel, tourism, and hospitality industries, causing further economic disruption.”
Though it’s still too early to tell if the Omicron variant will become as economically impactful as its predecessors, Cannon remarks that many nations (and states within the U.S.) learned their lesson from the initial onset of the COVID-19 virus in 2020 and are unwilling to take their chances again.
“In addition, inflation rates have soared to their highest levels in nearly 40 years,” Cannon said, “and the Federal Reserve has yet to release an effective solution regarding the correlation between this heightened inflation and interest rates going into 2022. When we couple this inflation with the emergence of a new disruptive COVID-19 variant, many traders and investors are still attempting to predict how this combination will affect their trading strategies over the next year.”
As Cannon mentions, the recent rise in inflation is bound to leave an impact on markets over the coming year. This is not to say that all stocks in the market will be affected unilaterally by rising inflation. While over-valued growth-oriented stocks may be the ones that suffer the hardest hit from rising inflation, discounted value stocks listed and traded at lower prices — such as those within the energy and financial market sectors — are likely to remain an attractive option for traders looking to protect their portfolios and maximize ROIs over the coming year.
“With this in mind,” Cannon added, “I expect to see a larger number of traders refocusing their investment and trading strategy away from companies that have traded at valuations excessively higher than their earnings outlook.”
Global economic slowdowns and market outlook
Following the economic disruption initially caused by the pandemic’s onset in 2020, this past year of 2021 was one focused primarily on economic recovery and growth. While the U.S. GDP saw some 6.4% average annual growth over 2021 — with Q2-2021 recording some 6.7% growth alone — this rate has since dropped to roughly 2.1% in Q3 as spending dipped across consumer markets, spurred by bottlenecks in global supply chains and inflation sending prices of goods higher.
“When we take into account all of these economic factors,” said Cannon, “it’s likely that investors will need to carefully rethink their trading strategies in 2022. In 2021, I believe that we have already witnessed the fastest rate of economic recovery since the pandemic began. That isn’t to say that no economic growth will occur in 2022; it will likely just occur at a much slower rate than the previous year. As such, investors will need to consider rising inflation, potentially higher interest rates, and a balance of investment risk versus growth regarding their 2022 trading strategies.”
According to Cannon, two markets in particular that are likely to continue growing into the New Year will be those of used car and home sales; the former due to lingering supply chain bottlenecks that have slowed production and raised prices on newer vehicle models, and the latter from a combination of eased lending standards and lower mortgage rates.
“Though U.S. markets and companies are still likely to grow in 2022,” Cannon concluded, “don’t expect to see the same rates of growth as we witnessed in 2021. I expect to see more growth from companies and markets in Europe and Southeast Asia as these regions continue to emerge from the economic fallout brought about by the pandemic, especially if we continue to see a rise in the dollar.”
With over 25 years of investment and financial planning experience, Bryan Cannon is a seasoned stock market technical analyst closely following overall market trends, market conditions, and specific equities. He has recently been featured in reports by CNBC; US News & World Report; CBS News; Investor’s Business Daily; Yahoo! News; Financial Planning; Health.com; Accounting Today TheStreet.com, and Authority Magazine.