Is the 2022 Stock Market Predictable?

Coming off a record stock market rise in 2021 and then seeing the stock market reach a new high on the first day of 2022, what should you expect for this year?

For 2021, the stock market, measured by the S&P 500, gained 27% while the DOW gained 19% (excluding dividends). These are great returns, particularly amid a worsening COVID-19 pandemic. Then, on the first day of trading in 2022, the DOW rose to a new all-time high of 36,561.

It is easy to get caught up in the momentum of a rising (or falling) stock market. In fact, people often will panic buy (or sell) in a sort of heard mentality.

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The case for a strong stock market

Low interest rates: Many factors have contributed to a strong stock market over the past several years. One primary factor is low interest rates. We have had low interest rates for over a decade and have experienced a relatively sustained bull market during that same time. With interest rates under 1%, investors will seek higher returns, leading them to the stock market.

Strong economy: Consumer spending, which accounts for some 70% of all spending, remains strong, evidenced by end-of-year holiday sales demand. Because of the pandemic, people spent much less time traveling this past year, and savings grew because of it. Much of that savings remain available for spending this year.

Government spending: The government has injected massive amounts of money into our economy since the pandemic began. Trillions of dollars have been given out to Americans at personal and business levels. That money quickly found its way back into our economy in the form of spending on goods, services, and payroll. I expect some form of the Democratic social infrastructure bill will be passed this year. While it likely will not be $2 trillion, it could still be a considerable number. That amount of money flowing into our economy should bode well for the market.

The case for a weak stock market

Inflation: As 2021 ended, inflation spiked to its highest level in decades (as high as 7%). Some segments of the economy, like lumber, saw an increase of at least 30% for building materials.

Federal Reserve action: In response to rising inflation, it is expected that the Federal Reserve will begin raising rates after decades of near-zero interest rates. Rising rates typically are not good for the stock market, and it often depends on how quickly interest rates rise.

What you should do?

The short answer is: no one knows what will happen with the stock market this year. Of course, many will make predictions, and some will be right, just as luck would have it, but no one knows for sure.

After 40+ years in this business, what I’ve found that works are setting up a consistent investing program in a diversified basket of well-researched stocks until you are within five to ten years of retiring. Then, as you approach your retirement date, begin to build a ‘safety net’ using fixed-income investments (bonds, CDs, money markets) that equal five to ten years (or more) of estimated annual retirement expenses. If you find investing, managing your money, or managing your finances a bit overwhelming, consider hiring a Certified Financial Planning Professional.

I believe in America and I believe in the stock market because the stock market is simply a reflection of American capitalism, American work ethic, and American values.



professional photo of certified financial planner Stewart Welch wearing black suit and red tie

Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States.  He is the author or co-author of six books, including 50 Rules of Success J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.



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