Top 5 market trends you should watch in 2022
Global chip shortage, US midterm elections… we list some of the biggest trends of events traders should keep their eye on in 2022.
At the start of 2021, the markets were hopeful of an end to the pandemic, due to the rollout of effective COVID-19 vaccines. Hopes were, however, dashed with the arrival of the Delta and Omicron variants.
The pandemic continues in 2022, setting back efforts for a global economic recovery. For traders, however, the situation couldn’t be better; returns on the S&P 500 during 2021 were about 27%. Equities and cryptocurrency saw a boom, oil saw a massive recovery and inflation remained low. The additional volatility brought by the pandemic created many opportunities for traders.
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Markets, however, are cyclical and it pays to look ahead and spot trends/events that could potentially disrupt the economy.
We list some interesting events and trends to look out for in 2022.
- The pandemic continues to drive markets
One inconvenient truth for investors and traders alike for the past three years is that the markets are still driven by the COVID-19 pandemic. Today’s landscape is hugely different from the start of 2020; vaccines have been globally rolled out and many countries, such as South Africa, have lifted the majority of their lockdowns. In January 2022, countries are dealing with the less severe albeit more infectious Omicron strain whereas a year earlier, the world was in the deadly grip of the infamous Delta strain.
There’s hope that 2022 will finally be the year the world, and the global economy returns to normalcy.
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Omicron however poses both short and long-term worries; even if it isn’t as deadly, what will the next variant be?
We’re already experiencing a post-Covid market rally even amid the pandemic. The reason for this is that markets, building on the experiences of the past two years, have already priced in expected gains from a fully reopened economy.
While there are still mask mandates and tourism remains far below pre-pandemic levels, many countries have already returned to a relatively “normal” life. All this hinges on our collective ability to combat the virus and deal with any new strains that may arise.
- Rate hikes, inflation, and job insecurity
Markets do well when interest rates are low. The US Federal Reserve has done an excellent job curbing inflation, but this could end in 2022. Already there are reports of inflation increases which in turn will lead to the Fed tightening its monetary policy, hurting stocks. Something Forex traders should keep in mind is that high inflation will negatively affect the US dollar.
US consumers are already feeling the brunt of high fuel prices, exacerbated by ongoing supply-chain shortages. Inflation will have a knock-on effect as lower consumer spending harms the market and in turn limits profits on the stock market.
One ongoing issue is unemployment, a global issue in 2021. The US still hasn’t regained the 22 million jobs it lost during the pandemic-induced recession. In South Africa, the unemployment rate has raised to 35%.
Staffing challenges, labour shortages, and unemployment support will curb global economic recovery.
3 Have the FAANG Stocks lost their edge?
For the past decade, the stock market has been dominated by the five tech giants forming the FAANG stocks – Facebook (now Meta), Amazon, Apple, Netflix (sometimes switched out for Microsoft), and Google.
The FAANG stocks have been the driving force behind the bullish market and tech sector.
In the past two years, however, they’ve experienced mixed fortunes; Apple continues to be a Wall Street darling, Microsoft and Google experienced gains in 2021, Facebook saw modest gains, Netflix has mixed results, while Amazon underperformed in the global market.
Government probes, multi-million-dollar fines, supply issues… despite being valued in the hundreds of billions, and in the case of Apple more than $1 trillion, the world’s biggest companies aren’t immune to business-related issues.
Some companies, such as Tesla, however, not only survived the pandemic but thrived; Telsa joined the $1-trillion market-cap club in 2021 and CEO Elon Musk took the title of world’s richest man from former Amazon CEO Jeff Bezos.
It will be very telling how the market will perform without the usual major returns-boost from FAANG.
- Supply Chain issues – Chip shortage
Major ports around the world are suffering backlogs, some as long as six months as the pandemic continues to wreak havoc with the global supply chain. Even if the pandemic finally ends, these supply issues won’t be fixed in the short term. One of the major repercussions of the supply issue is the global computer chip shortage, which will most likely dominate tech stock performance in 2022. Computer chips are now a rarity, increasing their price. This is good for chip creators but unless they can meet demand, much less physically deliver the sought-after hardware, any windfalls expected will be short-lived.
Major GPU produce, Intel, stated in a quarterly report that the chip shortage could last well into 2023. Could this be a sign to purchase stocks in chipmakers?
- The US Midterm Elections
The end of 2020 saw perhaps one of the most controversial elections in US history, as the world held its breath for an outcome that would forever change the economic and political landscape. Fast forward to 2022 and once again the world faces anxiety stemming from the US, this time due to the uncertainty of its midterm Congressional elections. The run-up to elections often rocks markets, particularly when a power shift in the US is expected and depending on the outcome, the markets could be in for a period of volatility.
‘The markets are doing things that I’ve never before’
Earlier in January, Fred Razak, Senior Trading Specialist at CMTrading, shared valuable advice for all traders.
He said: “The markets are doing things that I’ve never seen before, and I think they’re going to continue doing that. I think they’re going to be so many more opportunities in 2022 if 2021 is any barometer.
“It’s quite clear that the markets are moving us in a direction where we have some tremendous potential in every situation to overcome many hurdles going into 2022, and that’s something that I think people should take note of that it’s not always going to be like this. It’s not going to be where you have opportunities every single day like you do today, so take that heat and strike while the iron’s hot as they say.”
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Prices are accurate at the time of publishing.