In Limbo

Image source: Shutterstock - kckate16, SIVStockStudio

What's going on?

Stocks could be set for another strong year in 2022, even if company valuations end up going nowhere fast.

What does this mean?

The key US and European stock indexes the S&P 500 and the Stoxx 600 climbed 30% and 22% respectively this year. And Goldman Sachs thinks both will carry that momentum into next year, estimating that the S&P 500 will be 9% higher and the Stoxx 13% higher this time next year.

Thats all well and good, but the investment bank also argues that the S&P 500s price-to-earnings ratio a key valuation measure wont budge much. See, its true that shoppers are more likely to be out and about next year, pushing up expectations of companies profits and, by extension, their valuations. But its also true that any boost this provides could be offset by interest rate hikes, which would make safer investments more appealing at stocks expense, in turn lowering stocks’ valuations.

Why should I care?

For markets: Is this techs swansong?
Analysts still have their reservations about the US stock market, mostly because just 10 companies including Apple, Microsoft, and Amazon are responsible for around 30% of its value. If these stocks were to collapse, then, the entire index could too (tweet this). This is nothing new, admittedly, and investors have blithely continued to buy their shares for years. But 2022 could finally be the year they fall out of favor

For you personally: Goldmans recommendations.
First up, buy into companies think consumer staples, which sell everyday essentials that can pass price rises onto their customers without losing them to the competition. Second, avoid those with high workforce costs, since those costs are only going to get higher if wages keep rising. Third, growth stocks those of fast-growing companies are probably fine, but avoid unprofitable ones, which will be most at risk if interest rates rise.

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

Greatest Hits

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.