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Market Update: What Can Investors Look Forward to in 2022?

The U.S. stock markets ended on a positive note in 2021 as unemployment steadily improved during the re-opening of the world economy. As we moved into 2022, U.S. stock markets were off to a volatile first month, which can be attributed to investor concerns around inflation and the Federal Reserve looking to raise rates multiple times this year.


What improvement can investors expect?

Overall, we expect fundamentals to improve in terms of unemployment and economic output. However, higher borrowing costs will most likely translate into a slowing of consumer spending and borrowing. At the time of this writing, tensions are building on the Ukraine border as Russia is amassing troops and world leaders are meeting to find a diplomatic solution. Although tensions are high, we do not expect this to turn into all-out warfare and have a contagion effect on global stock markets.

Civilian unemployment rate and year-over-year wage growthWhat’s happening with interest rates?

As the Fed prepares for a likely rate hike in March (the first since 2019), markets started to sell off in response in January. However, history has shown that in the early phases of interest rate increases, stocks tend to move in the same direction as rates until rates fall somewhere between 3.6% and 4.5% on the 10-year treasury. 

Federal funds rate expectations

stock return and interest rate movements

How can investors prepare?

In order to better prepare for rising rates and higher inflation, investors may want to reduce duration in their bond holdings and also shift from growth- to dividend-paying stocks. This won’t take away all risk, but it could help adjust to higher inflation and interest rates.

A lot can happen between now and the end of the year, so we would recommend that investors not react sharply to market volatility. It’s also good to remember that in any given year, double digit losses can happen – yet the stock market has ended positive in 32 of the last 42 years.

Annual returns and intra-year declines

Review your portfolio in 2022

If you have any questions or concerns about rising inflation, interest rates, or your portfolio performance in the coming year, Chatterton and Associates is here to help. Contact us to discuss your time horizons and risk tolerance to make sure that your investments are aligned, and to help protect against market volatility as much as possible.


The Team at Chatterton & Associates

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.

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