Strategists on stock market are predicting another rocking year in 2022. But is everything rosy as it appears ?
Let's dive a little deeper
Analysts have given 5000+ target for S&P 500 amidst the pandemic. It seems that even COVID-19 cannot stop this juggernaut
If you go back in history S&P 500 has given a stellar performance next year whenever it had risen 25% the precceding year
But remember that stocks cannot go up forever. If you consider the 26.89% return in 2021, a repeat performance in 2022 means you are looking at a 20% correction by year end
One thing to remember is whenever the market sentiment became over-bullish detaching itself from ground realities like COVID-19 & inflation, you can expect a sudden jolt
The sudden jolt may come in terms of S&P becoming a mute performer over successive quarters
After 20 months of policy support, central bankers seem to have reached a saturation point from where they will be forced to withdraw some of the support.
The gush of liquidity not only shielded the financial markets from the COVID-related selling but created bloated valuations across asset classes.
This "free money" must come to an end
In 2022, the Federal Reserve may have to hike rates several times if inflation keeps soaring. Valuation cushion, too, is completely missing unlike in March 2020.
Analysts also agree that during a global health crisis economic data becomes less reliable and make it harder to see the future, it's tough to say with certainty what's coming around the bend. For now, though, sentiment is positive.
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