Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Think back to a year ago. Everybody was ready for a booming economic recovery and a summer of love in 2021, all made possible by Covid-19 vaccines. Some were even saying the end of the pandemic was in sight.
Then the Delta and Omicron variants arrived. As 2021 draws to a close, the pandemic continues unabated, generating one mixed signal after another and greatly complicating the global economic recovery.
In the stock market, however, the party lasted all year long. The total return on the S&P 500 in 2021 was more than 27%—not even dramatic inflation data was able to dampen the animal spirits. Not yet, anyway.
But observers are wondering how much longer the bull market can last—barely interrupted as it was by the shortest bear market ever in early 2020. There are signs that last call could be around the corner—tempered by other indications that investors still have money to make in 2022.
Here are the top nine investing trends to watch out for in the new year.
1. Markets Are Still Being Driven by the Covid-19 Pandemic
Which way will the pandemic winds blow? There’s hope that 2022 is the year when normalcy returns, sending travel, commercial real estate and traditional retail stocks even higher—but then again, we’ve heard that story before.
Delta dashed the dream in 2021. And as the calendar turns, Omicron’s emergence offers both short-term and long-term worries. Even if this variant doesn’t produce another surge of deadly infections, what about the next variant? Mother Nature, not humans, gets to write the end of this story.
Principally, investors should realize that the post-Covid market rally is already here, even if the pandemic isn’t over yet. That’s because stock markets have likely already priced in most or all of the gains that can be expected from a fully reopened economy.
While there are still mask mandates and airline travel remains below pre-pandemic levels, many Americans have already returned to a relatively normal life, so even if luck turns and the pandemic finally peters out sometime in 2022, there might not be much more room for the economy—or the stock market—to run.
2. Federal Reserve Rate Hikes Are Likely in 2022
Stocks do well when the Federal Reserve keeps interest rates low, but the days of the Fed’s zero interest rate policy (ZIPR) are numbered. The only question investors should be asking themselves is how many Fed interest rate hikes will happen in 2022.
The CME’s FedWatch Tool predicts at least two rate increases, based on how traders are speculating in the futures market. Meanwhile, the already planned reductions in the Fed’s monthly bond purchases—the so-called taper—means that quantitative easing (QE) will be over by spring.
QE and rock-bottom rate have helped to prop up stocks since early 2020. But more bad news, like even hotter inflation reports, might force the Fed to tighten monetary policy even faster, and that’ll probably end badly for stocks.