On February 5, 2022, Jerome H. Powell’s four-year term as chair of the Federal Reserve Board (FRB) will expire, although his term as a member of the FRB extends until January 31, 2028. Either he is reconfirmed or replaced as president by president Joe Biden, he will be closely followed and could have important ramifications for the economy and markets.
Meanwhile, FRB member Randal K. Quarles has announced that, upon his term of office at the end of 2021, he will step down and will not seek reconfirmation. As a result, President Biden may be able to fill up to four seats on the seven-member Federal Reserve Board (FRB) by the first part of 2022, offering him a key opportunity to change the direction of monetary policy and financial regulation.
Rohit Chopra enters 2022 as the new director of the Consumer Financial Protection Bureau (CFPB), closely confirmed by the United States Senate on September 30, 2021, with a 50-48 vote on the party line (Democrats in favor, Republicans against ) with five-year duration. Chopra indicates that his top priorities will include mitigating the financial impacts of the pandemic (including foreclosures and evictions), privacy concerns, and how banks use algorithms in lending decisions.
Occupation
As the economy recovers from the pandemic, labor markets have been strained, with many open positions remaining vacant, in part due to the “large resignations” of workers from the workforce. In addition, both support for trade unions and strikes for better wages and working conditions have increased. The persistence of these trends in 2022 will have critical impacts on labor costs, supply bottlenecks and inflation.
COVID-19 vaccine mandates at the federal, state and local levels are becoming not only a growing civil liberties problem, but also a significant factor leading to job vacancies in many sectors of the economy, particularly in contact positions. with customers in the service sector and in government. This is likely to remain a major problem until 2022.
Global corporate minimum tax rate
The Organization for Economic Co-operation and Development (OECD) announced on 8 October 2021 that, starting in 2023, its members have agreed to set an overall minimum tax rate of 15%. However, the key details still need to be explored. In 2022, announcements of these details are expected to be forthcoming and the impacts on corporate domicile choices should begin to come to light.
Asset class preferences
Wall Street analysts’ investment decision-making on cycle, value and sentiment in early December 2020 has a moderately positive mid-term view on global equities. Value is slightly expensive, with the expensive US market offset by fair value in the rest of the world. Sentiment is slightly overbought after post-vaccine optimism. The cycle is favorable to medium-term risk assets. Recovery from recession means a long period of low-inflation growth supported by monetary and fiscal stimuli.
• We prefer non-US stocks to US stocks, Italian stocks are also good . The post-vaccine economic recovery should favor stocks of undervalued cyclical value over expensive technology and growth stocks. Compared to the US, the rest of the world is overweight on cyclical value equities.
• We like the value of emerging markets (EM) stocks. China’s early exit from the blockade and stimulus measures should favor emerging markets more broadly, as well as a recovery in global demand and a weaker US dollar.
• High-yield and investment grade credits are slightly expensive based on the spread, but have attractive prospects for the post-vaccination cycle. US dollar-denominated bank loans and emerging market debt in our view offer the best opportunities.
• Government bonds are expensive. Low inflation and accommodative central banks should limit the rise in bond yields during the recovery. US inflation-linked bonds offer good value with break-even inflation rates well below the Fed’s target inflation rate.
• Real Assets: Real estate mutual funds (REITs) sold heavily in March 2020, with investors concerned about the implications of social distancing and online shopping for office buildings and malls. Sentiment appears to be overly bearish, while the value is positive. These should be a pandemic pickup trade. Listed infrastructure is also expected to benefit from the global recovery, stimulating demand for transport and energy infrastructure.
• The US dollar is expected to weaken in the global economic recovery given its countercyclical behavior. The dollar typically gains during global recessions and declines in the recovery phase. The main beneficiaries are expected to be economically sensitive commodity currencies: the Australian, New Zealand and Canadian dollar. The euro and the British pound are undervalued. Both currencies are expected to be boosted by post-vaccination recovery.
The Previous Situation
If it is true that the forecasts for the Italian economy say that in 2022 our GDP will grow by about 4% according to the International Monetary Fund, it is also true that globally we are talking about stagflation. Stagflation is a time when the economy is not growing, and inflation is present. This is what many economists say and they are probably right as well. It must be said, however, that the US central bank has said that inflation will end in mid-2022.
According to our point of view, it is therefore better to focus on shares that will surely grow, such as those related to the PNNR and always remain very attentive to market changes.
In September the market is expected to continue to grow, but as we have said several times there will be several technical adjustments . A technical adjustment for a stock or an entire list means several percentage points of loss, but we can limit it to a range within – 5%.
Indeed there are few hotspots, if we exclude the supply problem of semiconductors for cars that are affecting both this type of investments and the price of shares such as Stellantis ( STLA ) which seems to have stopped its rally ( + 200 % in one year ) like the whole automotive sector .
Substantial market growth is still expected in July, but how long will it last ?
After a good ride in the markets, many now explicitly speak of a stock market bubble , but not everyone agrees and indeed, some say it will continue to rise.
According to us, we must listen to all the parties and realize that for example the FTSE MIB is at its all-time high and that for 20 years now, when it is around 24,000 points, then it collapses. So CAUTION even if there won’t be a collapse, there will certainly be an adjustment .