2022 Key Predictions by FactSet Experts

After an eventful 2021, our experts offer their predictions for the trends that will shape 2022.

U.S. Earnings: Analysts Predict CY 2022 Earnings Growth of 9.2%

John Butters, VP, Senior Earnings Analyst

Even with a difficult comparison to expected, record-high earnings growth of 45.1% in CY 2021, analysts still expect the S&P 500 to report high single-digit earnings growth in CY 2022. The estimated (year-over-year) earnings growth rate for CY 2022 is 9.2%, which is above the trailing 10-year average (annual) earnings growth rate of 5.0% (2011-2020). Ten of the 11 sectors are projected to report year-over-year growth in earnings, led by the Industrials, Consumer Discretionary, and Energy Care sectors. The Financials sector is the only sector projected to report a year-over-year decline in earnings.

European Earnings: Margins Up and Dividends Down as Companies Deleverage in 2022

Sebastian Segerstrom, VP, Product Strategist, Research Strategy

As we look ahead to 2022, analysts are predicting that the STOXX Europe 600 on aggregate will report an EBIT margin of 15.5%, the same as in 2021. This would be the highest EBIT margin we have seen over the past decade, compared to the 10-year average of 13%; this indicates that companies are focused on improving business efficiency and maintaining a healthy operating margin due to uncertain market conditions. If we look at the expected dividend payments, the payout ratio is expected to be just under 47%, the lowest in 10 years and significantly below the 10-year average of 55%, a clear trend during COVID-19 as we can see that companies are filling up their balance sheets and lowering their debt ratios. Net debt/EBITDA for the index is estimated to be 1.23x in 2022 compared to the 10-year average of 1.51x; this would be the lowest figure we’ve seen in the last decade.

U.S. Economy: Inflation Eases in 2022, Fed Remains Patient

Sara B. Potter, CFA, Senior Marketing Content Specialist and Economic Contributor

Surging inflation has become the central area of focus in the last two quarters for consumers, businesses, and policy makers alike. While the so-called “transitory” inflation has not been as short-lived as many had hoped, over the next 12 months forecasters are calling for a significant easing of the supply and demand pressures that have led to this year’s spike in prices. Analysts surveyed by FactSet are projecting that quarterly year-over-year total CPI inflation will peak in the fourth quarter of 2021 followed by a steep decline in the last three quarters of 2022.

At the same time, while the December FOMC meeting showed that some Fed officials are anticipating more aggressive rate hikes, the median forecast from FactSet Economic Estimates shows just one rate hike in 2022. Obviously, the path of interest rates will depend on inflation and employment dynamics in the coming months.

Fixed Income: An End to Easy Money

Pat Reilly, CFA, SVP, Senior Director, Americas Analytics

Ah, 2022, when the world puts virus disruption behind it just in time to focus on the last vestiges of the easiest monetary policy of our lifetime. I have four predictions as we turn the calendar:

1. The Fed goes full hawk in 2022. The mortgage-backed securities purchase program concludes by the end of April instead of maintaining a linear monthly reduction over the course of the year. We see a move away from zero-bound rates with an increase in the Fed Funds rate following the midterm elections. {Editor’s note: this prediction was made prior to the latest FOMC statement on December 15.}
2. The definition of “green bond” and Use of Proceeds from issuance becomes a front-of-mind issue for the U.S. Securities and Exchange Commission (SEC) and other investor associations and regulatory bodies as green bond issuance hurtles toward another year of record issuance.
3. Both investment grade and high yield see another record year of issuance as issuers seek to squeeze one last funding round out of the historically low rate and spread environment.
4. Non-fungible tokens (NFTs) and cryptocurrencies make inroads with institutional investors via new asset-backed securities (ABS) structures by highlighting a “controlled risk profile.” This unofficially marks a market top.

ETFs: A Continuation of Secular Trends

Elisabeth Kashner, CFA, VP, Director of ETF Research and Analytics

In 2022, I expect to see a continuation of these secular trends:

• Continued movement of assets from active to passive management
• Ongoing shift away from mutual funds to ETFs, taking advantage of ETFs’ lower operating costs and potentially higher tax efficiency
• Flows shifting from costly products to cheaper ones, with ETF fee compression affecting every asset class and investment strategy.

Private Markets: Strong PE/VC Deal Activity

David Kremski, VP, Director of Private Markets

Private equity (PE)/venture capital (VC) deal activity will remain incredibly competitive across all regions and private company valuations will hit all-time highs. This will be exacerbated by record levels of dry powder and investors/companies continuing to adapt to the post-pandemic ‘’new normal.” Supply chain issues, rising inflation, corporate tax concerns, and labor shortages will likely persist, but companies and investors will acclimate and thrive in 2022. Environmental, social, and governance (ESG) tracking and investments will continue to be significant draws for investors, and general partners (GPs) will continue to embrace diversity, equity, and inclusion (DE&I) strategies as there is strong evidence that diverse teams outperform their counterparts.

Wealth Management: Market Trends Will Benefit Wealth and Asset Management

Philipp Zerhusen, VP, Director, Digital Wealth Solutions

Given the COVID-19 crisis and the continued impact on country debt levels, and despite runaway inflation, I do not expect a significant increase in interest rates next year—we are certainly far away from “back to normal.” With a relatively positive economic outlook and increased government spending, I expect a continuation of the bull markets in equities.

All of this points to another good year for wealth and asset management. It remains to be seen whether ESG will gain significant traction in 2022 given delays in the corresponding European legislation and thus compliance requirements. I expect that we will surpass and shift from a rather “mechanical” ESG focus to a more refined “impact investment” and a greater focus on thematic investment beyond ESG only. With an increased focus from mainstream wealth management on private equity investment, impact investing in very innovative businesses (typically early in the corporate lifecycle) becomes a reality as an alternative asset class.

Lastly, the ever-increasing shift of private investors away from traditional “savings” to equity and ETF investments (and even more so, the longer reign of low interest rates), will continue to boost the business models of neo-brokers. We will see a new entrants and ever-higher valuations of many “unicorn” neo-brokers. Investments in fractional shares and ETFs will become mainstream and thus “democratize” formerly privileged investments to the masses.

South African Economy: The IMF Sends a Warning

Raksha Gosai, CFP, Strategic Consultant, MEA Client Consulting

With the ongoing COVID-19 wave, downside risks to the economic outlook are more prominent. Extended travel restrictions to the country, a sharp drop in the prices of commodities that the country exports, and a sudden tightening of global liquidity conditions have all led to an increase in the unemployment rate amid already deteriorating investor confidence.

Rolling power cuts forced by aging and poorly designed power plants continue to add to the economic woes of the country. Eskom Holdings is South Africa’s only power utility, supplying 95% of the nation’s electricity. This is particularly concerning as Eskom’s problems are well documented and have largely remained the same over the last decade.

In January 2022, the South African Reserve Bank (SARB) is scheduled to determine the cycle of interest hikes for the new financial year. If Omicron has negative effects on the economy, the SARB may choose to pause the cycle.

The IMF has warned that structural rigidities are depressing private investment and hindering inclusive growth and job creation. These rigidities need to be tackled immediately to increase the economy’s productivity and competitiveness and reduce poverty and inequality.

Disclaimer: The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.