Taking Stock: Q1 2022 Equity Market Outlook

“Normal” is in the eye of the beholder. But if it entails elements of “ordinary,” “expected,” or even “boring,” it will be a welcome change for financial markets. We think 2022 could feature some of these long-missed traits. As the calendar turns the page, we see:

  • Moderation in both the headwinds and tailwinds for stocks
  • Positive, but more muted, market returns
  • Stock selection having a bigger bearing on outcomes

Market overview and outlook

2021 was remarkable in many respects. Three market dynamics to note: value rivaling growth for the first time in half a decade, earnings growth and positive surprises of historic proportions, and inflation readings unlike any seen by many present-day investors.

What next? We see growth and value running neck and neck in 2022, offering opportunity for both camps. Earnings should remain strong as companies look to meet pent-up demand for products and services. Earnings surprises, however, are already moderating toward the long-run trend (see chart below). Inflation is the one dynamic that may continue to overdeliver. While inflation is a concern and source of volatility, it also makes stocks the most compelling choice among the major asset classes. Individual companies will manage through differently, highlighting the importance of a stock-by-stock approach.

2022 earnings outlook: Less surprising, more normalizing
S&P 500 earnings per share (EPS) surprise, 2003-2021