- July 28, 2022
- Posted by: Ramkumar
- Category: Posts
My Prediction For US Stock Markets in 2022
The old saying “𝐖𝐡𝐞𝐧 𝐭𝐡𝐞 𝐔𝐒 𝐬𝐧𝐞𝐞𝐳𝐞𝐬, 𝐭𝐡𝐞 𝐰𝐨𝐫𝐥𝐝 𝐜𝐚𝐭𝐜𝐡𝐞𝐬 𝐚 𝐜𝐨𝐥𝐝” continues to hold in 2022, mainly in the #indianstockmarket. We witnessed another correction in #Sensex yesterday, which had nothing to do with the fundamentals of Indian companies.
Thus, i analysed the S&P 500 index, recent fed hikes and the Q1 earnings of companies in the S&P 500 index to forecast the future for 2022 and 2023.
My analysis shows the following:
1)417 of 486 companies in the S&P 500 index (~86%) cited #inflation as a critical risk in their Q1 earnings call.
2)Although earnings growth beat the market estimates in Q1, much of this growth came from the energy sector, with ExxonMobil making a ton of cash due to high oil prices. This windfall made #joebiden comment that 𝐄𝐱𝐱𝐨𝐧 𝐌𝐨𝐛𝐢𝐥 𝐦𝐚𝐝𝐞 𝐦𝐨𝐫𝐞 𝐦𝐨𝐧𝐞𝐲 𝐭𝐡𝐚𝐧 𝐆𝐎𝐃 𝐥𝐚𝐬𝐭 𝐲𝐞𝐚𝐫.
3)The #Materials and #Airlines industry was the other significant contributor to growth, while #consumerstaples were affected the most. Walmart and Target performed poorly, but the most significant decline came from Amazon, which shows that 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐜𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐩𝐚𝐬𝐬 𝐭𝐡𝐞 𝐢𝐧𝐩𝐮𝐭 𝐜𝐨𝐬𝐭 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐬 𝐭𝐨 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬.
With the above analysis, 𝐦𝐲 𝐩𝐫𝐞𝐝𝐢𝐜𝐭𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐔𝐒 𝐬𝐭𝐨𝐜𝐤𝐬 𝐚𝐧𝐝 𝐭𝐡𝐞 𝐞𝐜𝐨𝐧𝐨𝐦𝐲 𝐟𝐨𝐫 𝟐𝟎𝟐𝟐 𝐚𝐧𝐝 𝟐𝟎𝟐𝟑 are as follows:
1)As the real growth in the US declines due to fed rate hikes, the earnings growth will come down in the subsequent quarters. My rationale is that there is a 𝐬𝐭𝐫𝐨𝐧𝐠 𝐩𝐨𝐬𝐢𝐭𝐢𝐯𝐞 𝐜𝐨𝐫𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧 𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐫𝐞𝐚𝐥 𝐠𝐫𝐨𝐰𝐭𝐡 𝐚𝐧𝐝 𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐠𝐫𝐨𝐰𝐭𝐡. Thus interest rate hikes will lead to demand destruction that will eventually impact corporate earnings.
2)In high inflation periods, the 𝐝𝐞𝐜𝐥𝐢𝐧𝐞 𝐢𝐧 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐩𝐫𝐞𝐜𝐞𝐝𝐞𝐬 𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐝𝐞𝐜𝐥𝐢𝐧𝐞. Thus, higher Inflation will lead to margin decline affecting valuation. Markets will 𝐫𝐞𝐰𝐚𝐫𝐝 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐨𝐧 𝐟𝐮𝐧𝐝𝐚𝐦𝐞𝐧𝐭𝐚𝐥𝐬 𝐭𝐡𝐚𝐧 𝐠𝐫𝐨𝐰𝐭𝐡 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥. Therefore companies earning substantial cash flows will trade at a premium.
3)𝐀𝐭𝐭𝐫𝐚𝐜𝐭𝐢𝐯𝐞 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐚𝐫𝐞 𝐧𝐨𝐭 𝐭𝐡𝐞 𝐭𝐞𝐜𝐡/𝐬𝐨𝐟𝐭𝐰𝐚𝐫𝐞 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐭𝐡𝐚𝐭 𝐡𝐚𝐯𝐞 𝐥𝐞𝐝 𝐭𝐡𝐞 𝐒&𝐏 𝟓𝟎𝟎 𝐢𝐧𝐝𝐞𝐱 for the last few years. Further, large-cap firms will perform better than small-cap because rising yields will impact small-cap stocks more.