2022: Bull or Bear ?

On November 25th, Bloomberg reported that 2021 inflows to ETFs and long-only funds was approximately $0.9 Trillion, exceeding the combined total of the previous 19 years!  By year end, the number had exceeded $1 Trillion in stock market inflows, mostly into ETFs.  Wow.  Make your own call but its generally not profitable to try and call a top.  Its a lot of risk chasing.  Last year saw record inflows into financials, consumer, energy, materials, real estate and infrastructure.  Tech and healthcare saw their second-best inflows.

The S&P500 has now doubled over the trailing three years, the first time that it has done this in 20 years – note the last time this happened was the March 2000 bull market top.  It has been a huge bull market.  Last year had seventy record highs in the index.  Going back to 1980, when the S&P has been up more than 20% in the year, January performance has been muted.

With the S&P trading at 21 times projected 2022 earnings, its not terribly expensive, but profit growth is decelerating: 9% expected profit growth vs. 16% last year.  There still is nowhere else to put your money.  Bonds are stupid at these levels and you should not be buying real estate right now.  Sectors like energy trade at 11x earnings, so there are still logical places for capital.

A year or 15 months from now, the S&P500 is likely to cross the 5,000 mark.  There is nowhere else to invest, and the interest rate increases are not coming in 2022.  Given that many stocks are over-extended and bonds pay interest less than inflation, it makes sense to look for stocks and sectors that are not over-extended.  The best risk-adjusted trades will be in good GARP stocks trading under 25 times earnings and it will be another year of “buy-the-dips”.   It also should be a good year for classic value stocks.  Stay away from the high-flyers of recent years. This year will almost certainly have a 10% to 12% drawdown, which will be a decent buying opportunity.  Also look for pullbacks in extended stocks. 

Chris Argyrople

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Not investment advice.