Stock market predictions for a new year can be tricky, especially after a strong period like 2021. The S&P 500 index soared nearly 27% last year, making it one of its best in the past three decades. But that impressive rally has also stretched valuations of many stocks, especially growth shares, into a territory higher than at any time since the tech bubble witnessed between 1998 and 2000.
The final weeks of 2021 saw a wide range of forecasts on Wall Street. Analysts’ stock market predictions generally highlight a hesitant optimism for 2022, suggesting more modest returns this year. Put another way, it’ll possibly be hard for markets to repeat the performance of the last 52 weeks.
Seasoned investors are expect more choppiness, in part due to upcoming steps by the Federal Reserve to curb inflation levels. Meanwhile, many wonder if the cryptocurrency market volatility — as evidenced by large swings in digital assets like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) — could spill over to Wall Street as well. And the omicron variant has meant further uncertainty for the recovery of the global economy.
Given the prospect of rising inflation, persistent supply-chain issues, as well as the contagious Covid-19 variants, 2022 should be the year to be selective about choosing stocks. With that information, here are seven key stock market predictions that could help investors generate lucrative returns in the coming months:
- Decarbonization efforts grow
- Disruptive technologies go mainstream
- High inflation leads to rising interest rates
- Metaverse stays in the limelight
- Value stocks see capital inflows
- Semiconductor stocks shine again
- Short-term volatility increases
Stock Market Predictions: Decarbonization Efforts Grow
Wall Street agrees that the momentum behind decarbonization should accelerate in 2022, fueled by global concerns for climate change. As a result, there is broad support for environmental, sustainability, and governance (ESG) considerations worldwide.
Meanwhile, President Joe Biden has made the transition to renewable energy a primary focus of his administration, setting the target for a carbon-free power industry by 2035. In fact, the proposed $1.75 trillion social safety net and climate package includes $555 billion in decarbonization spending.
A new report from the S&P Global indicates that utility-scale solar and wind deployments will most likely hit a new record in 2022. The report cited, “If the current administration is successful in putting the U.S. on a path to 100% decarbonization of the energy sector by 2035, these record-setting projections are just the beginning.”
Therefore, 2022 could bring further opportunities on the decarbonization theme. In addition, the expansion of state-level renewable requirements and expected extension of tax credits for the industry could boost the renewable sector activity.
Analysts expect 2022 to be a stock picker’s market, and recommend investors focus on fundamental analysis. Thus, it is important to identify those alternative energy stocks that set themselves apart in terms of technology differentiation and earnings power.
Therefore, the following names could be of interest to InvestorPlace readers:
- Brookfield Renewable Partners (NYSE:BEP)
- Enphase Energy (NASDAQ:ENPH)
- First Solar (NASDAQ:FSLR)
- NextEra Energy (NYSE:NEE)
Stock Market Predictions: Disruptive Technologies Go Mainstream
Despite high valuation levels in many high-growth names, tech stocks still remain vital for the overall health of the stock market. In fact, many tech stocks still constitute the lion’s share of U.S. Bank’s top picks, along with healthcare and consumer discretionary stocks. For instance, Charles Schwab recommends investors focus on quality stocks and avoid trying to time any sector rotation in their portfolios.
UBS sees significant investment opportunities in disruptive technologies and the renewable energy transition. In particular, the bank highlights attractive opportunities in the “ABC” of disruptive technologies, which include artificial intelligence (AI), big data and cybersecurity stocks. Its outlook indicates that the combined revenues of ABC technologies could increase from almost $385 billion in 2020 to $620 billion by 2025.
Moreover, the Street recommends that investors do not just focus on a few well-known mega or large-cap (capitalization) technology names. Instead, they should search for up-and-coming mid-cap names and early-stage tech companies. Against this backdrop, investors could keep the following stocks under their radar:
- C3Ai (NYSE:AI)
- CrowdStrike (NASDAQ:CRWD)
- Fortinet (NASDAQ:FTNT)
- International Business Machines (NYSE:IBM)
- Palantir Technologies (NYSE:PLTR)
- UiPath (NYSE:PATH)
Stock Market Predictions: High Inflation Leads to Rising Interest Rates
Investors can expect the Fed to be a key force in determining the market’s trajectory in 2022, as the central bank remains committed to curbing inflation. At the December Fed meeting, policymakers already signaled the possibility of increasing the fed funds rate at least three times in the new year.
Readers might be interested to know that the next Federal Open Market Committee meeting will be held on Jan. 25-26. We’ll also get economic reports detailing inflation and consumer spending for the holiday season. Many investors are wondering whether we could have a rate hike as early as March. Meanwhile, recent research by Goldman Sachs suggests we could see four interest rate hikes in 2022 as opposed to three.
Higher real interest rates and a steepening of Treasury yield curves could lead to declining price/earnings multiples in the more rate-sensitive sectors. As a result, retail investors will need to focus on companies with solid bottom-line growth. Firms that cannot pass inflation on to their customers will likely show poor financial performance. So robust business models, pricing power, and high margins are among the key metrics to watch.
Given the imminent increase in interest rates, several sectors to concentrate on include financial services, infrastructure and REIT. Several stock picks include:
- Crown Castle International (NYSE:CCI)
- Innovative Industrial Properties (NYSE:IIPR)
- JP Morgan Chase (NYSE:JPM)
- Vanguard Financials Index Fund ETF Shares (NYSE:VFH)
- Vulcan Materials (NYSE:VMC)
- Wells Fargo (NYSE:WFC)
Stock Market Predictions: Metaverse Stays in the Limelight
One of the investing themes of 2021 has been the metaverse. It merges technologies like augmented reality (AR) and virtual reality (VR) with tech segments like social media, gaming, and video. The metaverse may be in its early days, but many of its essential components are already in place. Therefore, the Street sees high-growth opportunities in the coming quarters.
LinkedIn CEO Reid Hoffman expects considerable investment and development in the metaverse space in the rest of the decade. The main question remains whether it can evolve to host the next generation of social media, streaming, and gaming platforms. For instance, Morgan Stanley forecasts the metaverse could potentially become an $8 trillion market.
Meanwhile, global spending on AR and VR devices is growing steadily. Apple (NASDAQ:AAPL), Samsung (OTCMKTS:SSNLF), and Microsoft (NASDAQ:MSFT) all have plans to soon bring their AR or VR devices and developer tools on the market.
Many game and software development platforms, such as Roblox (NYSE:RBLX) and Unity Software (NYSE:U), and chip giants like Nvidia (NASDAQ:NVDA) are also investing in the space. As a result, the metaverse can potentially carry these tech stocks to new all-time highs in 2022.
Stock Market Predictions: Value Stocks See Capital Inflows
Value stocks generated higher returns than growth shares in recent weeks, primarily due to Fed’s announcement that it’s accelerate the timeline for interest rate increases. For instance, in the past month, the Invesco S&P MidCap 400 Pure Value ETF (NYSEARCA:RFV) is up 3.1%. On the other hand, the Invesco S&P 500 Pure Growth ETF (NYSEARCA:RPG) declined over 7.5%.
Low interest rates encourage investors to take risks, attracting capital primarily toward growth stocks. On the other hand, higher interest rates typically hit growth stocks with frothy valuations. And value stocks begin to see more capital inflows.
The prospects of rising interest rates will most likely urge investors to focus on cheaper value stocks that generate steady cash flow regardless of developments in the broader economy. Passive income seekers are will also want to put money into stable dividend-paying shares. Therefore, the following names deserve further due diligence:
- Ambev (NYSE:ABEV)
- Ameris Bancorp (NASDAQ:ABCB)
- Arbor Realty Trust (NYSE:ABR)
- Daqo New Energy (NYSE:DQ)
- General Motors (NYSE:GM)
- Fedex (NYSE:FDX)
- Hewlett Packard Enterprise (NYSE:HPE)
- LG Display (NYSE:LPL)
- Old Republic International (NYSE:ORI)
- Pfizer (NYSE:PFE)
- Verizon (NYSE:VZ)
Stock Market Predictions: Semiconductor Stocks Shine Again
Semiconductor and chip equipment revenue saw double-digit growth in 2021. As a result, the PHLX Semiconductor Sector index returned about 30% in the past year.
Although the new year may not see such robust numbers, industry experts still forecast a good year for semiconductor companies. For example, the World Semiconductor Trade Statistics (WSTS) metrics suggest, “global sales will increase … 8.8% in 2022.”
Similarly, wafer foundry manufacturing revenue is expected to remain solid due to tight supply. In addition, the long-term demand for advanced chips used in the Internet-of-Things (IoT), 5G infrastructure, and electric vehicle (EV) applications like autonomous driving should contribute to further growth momentum in chip foundry services.
Therefore, investors might want to allocate a portion of their portfolios to the following chip leader or exchange-traded funds (ETFs) that hold them. Shares to watch would be:
- Advanced Micro Devices (NASDAQ:AMD)
- Analog Devices (NASDAQ:ADI)
- Applied Materials (NASDAQ:AMAT)
- Intel (NASDAQ:INTC)
- Micron Technology (NASDAQ:MU)
- Nvidia (NASDAQ:NVDA)
Stock Market Predictions: Short-term Volatility Increases
As the Fed turns increasingly hawkish in 2022, analysts are expecting S&P 500 to become more volatile. Therefore, investors will pay close attention to the CBOE Volatility index (VIX), or the key benchmark for U.S. stock market volatility. It is also called the “fear-index.”
Most of our readers would know that the VIX hit extreme levels in the early weeks of the Covid-19 pandemic in 2020. Right now, it is hovering around 20. But about a month ago, it went over 30.
Stock market bears point out that many names are currently trading at record multiples. With increasing rates, these frothy valuations should decline. If you’re also worried that a large number of stocks may not be able to keep going up in double-digits, then 2022 could be a good year to pay attention to defensive shares.
Diversification with a focus on names that perform well in high inflation seems to be a common theme in most analyst forecasts. Periodic rebalancing could also be a critical success factor in times of heightened volatility. Therefore, you might want to pay attention to ETFs that help you diversify in an uncertain market. Examples would include:
- Global X MLP ETF (NYSEARCA:MLPA)
- Invesco DB Commodity Index Tracking Fund (NYSEARCA:DBC)
- Invesco S&P 500 High Div Low Volatility ETF (NYSEARCA:SPHD)
- iShares MSCI USA Min Vol Factor ETF (BATS:USMV)
- Janus Henderson Short Duration Income ETF (NYSEARCA:VNLA)
- JPMorgan Diversified Return International Equity ETF (NYSEARCA:JPIN)
- Legg Mason Low Volatility High Dividend ETF (NASDAQ:LVHD)
- Nuveen Short-Term REIT ETF (BATS:NURE)
- O’Shares US Quality Dividend ETF (BATS:OUSA)
- Teucrium Agricultural Fund (NYSE:TAGS)
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.