Happy New Year, everyone! As you may recall, our overall macro theme for 2021 was “The Reopening of the Global Economy.” The theme proved true as 2021 was a year marked by a sharp uptick in earnings and economic growth as the economy began its reopening process from the COVID-19 pandemic shutdown. 2021 was also a year that saw significant stock market returns (specifically in the U.S.), excessive valuations, record-setting inflation, supply chain issues, labor supply shortages, a patient Federal Reserve, and two new variants of COVID-19.
We see the overall theme for 2022 as being “Still Growing but yet Slowing” as it relates to both economic and stock market growth. This theme may ultimately prove to be the case for inflation as well as the New Year progresses. In this regard, below are our “Top 10 Investment Themes for 2022” for your review and consideration, remembering that while 2021 turned out to be far less volatile than 2020, short terms bouts of volatility may start to pick up again in 2022, as we saw late in 2021.
1. Investing for a Rising Rate Environment – based on the Federal Reserve’s pivot at the end of 2021, it appears as though they may now be adopting a more hawkish stance to removing the stimulus provided during the COVID-19 pandemic while helping to combat non-transitory areas of inflation. The “Dot Plot” chart that was released after their December 2021 FOMC meeting shows the median forecast of FOMC voting members projecting three rate hikes of 25 Basis Points (Bp) each in 2022, another three rate hikes of 25 Bp each in 2023, and two additional rate hikes of 25 Bp each in 2024. While it seems unlikely that there will be three rate hikes in 2022 at this time, and those that do occur will likely occur no earlier than the 2nd quarter, it is fair to conclude that we are entering a rising rate environment. Asset classes that have historically performed well during periods of rising interest rates include, but are not necessarily limited to, equities, high yield bonds, precious metal miners, and convertible bonds.
2. The E-commerce Growth Story Continues – the transition from traditional, in-person retail sales to online sales was well underway before the COVID-19 pandemic due, in large part, to the speed and convenience of shopping online. This transition has only accelerated through the pandemic. Consider that E-commerce sales accounted for just 4.2% of total U.S. retail sales in Q1 2010 and recently accounted for over 13% in Q3 2021, according to Statista. It is also estimated that a record $207 billion will be spent online in the U.S. during the 2021 holiday shopping season. Additionally, it is forecasted that E-commerce will account for nearly 22% of all retail sales globally by the end of 2024. As a result, it has become abundantly clear that E-commerce is not just a fad or a seasonal story but rather represents an ongoing growth narrative with many associated investment opportunities. In our view, these opportunities exist for traditional E-tailers and other companies that derive revenues from their role in the overall E-commerce ecosystem, such as payment providers, Industrial REITs, and air freight & logistics firms.
3. Financials Positioned to Perform as Rates Rise and the Economy Expands – The banking industry maintains a unique and prominent position within the U.S. economy. This critical component of the U……..