Investors need to prepare for a vibrant 2022. We do not believe stocks are undervalued, and the key to success will be in identifying the areas of a national and global enterprise that will outperform:
Sad news for bondholders-
Next year, bonds, other fixed-income securities, and bank savings will face a challenging outlook. Historically low yield these past three years are the problem. Interest rates are likely to rise with an increase in inflation, reducing the value of bond portfolios.
Mixed news for stock investors-
We believe stocks are not currently under-priced. Share value growth will be from three primary areas of innovation: Sustainability, Health Care, and Digital Transformation. The US economy should emerge from the pandemic era stronger than before. Regarding Sustainability, frequent and destructive natural disasters and the need to reverse global warming will drive this sector to outperform others.
The second era of innovation that should outperform the market is in healthcare. Researchers are looking to see whether the mRNA vaccines can be used to treat other diseases in healthcare. The third area of innovation is in digital transformation. The auto industry, in many ways, will be the driver and the epicenter for disruption and opportunity. The electrification of the global transportation fleet will prove to be the driving force; think electric self-driving cars.
We believe fiscal stimulus will continue to be a powerful force in Europe, and in marked contrast to the early 2010s when fiscal austerity damaged already weak European economies. Europe needs to play serious catch-up. Asia and emerging markets, we believe, will be decidedly less supportive for equity investors. Chinese policymakers have been on a campaign to rebalance and restructure their economy. They are making considerable efforts to massively tighten the construction and property sector, rapidly shifting internet regulations, and setting ambitious climate change goals.