2022 Stock Market Forecast: Uninspiring Upside

After sharing my 2022 housing market forecast, it's only right to share my 2022 stock market forecast. Creating forecasts helps me think things through given I've got real money at stake.

First some background.

Due to continued gains in the stock market, roughly 35% of my net worth is in equities. This is 5% higher than my upper-limit target of 30% as I’ve let positions ride. 50% of my net worth is in real estate after buying a new home in 2020.

70% of my equity investments are in index funds. The remaining 30% of my equity investments are in single stock names such as Apple, Tesla, Google, Meta, Amazon, and Netflix. I've held these growth stocks for years; as a result, their percentage has grown from about 10%, 10 years ago.

The most recent high conviction post I published was on March 18, 2020, How To Predict A Stock Market Bottom Like Nostradamus. I ended up dumping about $300,000 in the S&P 500 and various stocks in March and April 2020. Unfortunately, I did not hold onto my entire position all the way up. But I have held onto 95% of my existing positions.

Overall, my stocks generate between $1,600 – $1,800 in dividend income a month. The dividend income could be 7-8X higher, but I predominantly invest in growth stocks over dividend/value stocks. When I'm in my 60s with likely lower income, I will allocate more towards dividend stocks.

In 2021, my public investment portfolios (includes bonds) grew 24.5%, underperforming the S&P 500 by about 2.5%. In 2020, my public investment portfolios grew 40%, outperforming the S&P 500 by about 23%.

Finally, I worked in equities for 13 years and have been investing in stocks since 1995. Now that I've shared some details, here is my 2022 stock market forecast.

2022 Stock Market Forecast: Uninspiring Upside

Let's first discuss some positives and negatives for the stock market in 2022.

Positives for the stock market in 2022:

  1. Interest rates will likely remain low, despite the Fed implying it may hike three times in 2022. (This has turned out wrong!)
  2. Inflation should subside and still create a negative real interest rate environment.
  3. Corporate earnings are likely to continue growing by ~10% after rebounding by 50%+ in 2021.
  4. Consumers will likely spend more aggressively due to a bull market in stocks, real estate, and alternatives.
  5. More government spending to boost the economy.
  6. A less potent COVID variant that is quickly transmitting and creating immunity.
  7. New vaccines and pills to combat COVID variants.
  8. Expanding corporate margins as prices go up and input costs decline.
  9. Easing supply chain woes.

Negatives for the stock market in 2022:

  1. Historically high valuations.
  2. Rising Fed Funds rates make credit card debt, student loan debt, and auto debt more expensive.
  3. Three consecutive years of returns much higher than the historical average.
  4. Decelerating economic and corporate profit growth.
  5. COVID is still here with more unknown variants to come.
  6. Rising real yields as inflation slows and rates inch higher, even though they will likely remain negative.
  7. Deteriorating foreign relations with Russia and China
  8. Markets have historically fallen before midterm elections with a democratic President, House, and Senate.

Overall, I expect the S&P 500 to rise by a modest 5% to 5,008 after a stellar 27% increase in 2021. A 5% return will be roughly 3.3X the current 10-year bond yield and 3% – 5% below my median home price increase forecast for 2022. With the stock market selling off in January, 5,008 is now looking tougher to achieve. But I’m going to stick with it so far.

As of Dec 5, 2022, this forecast has been wrong, with the S&P 500 declining by 25% at one point. But I did write I had a 65% conviction we will see a 10%+ decline for the year. 2022 has, indeed, turned out to be uninspiring!

The year is not over, but it's clear the S&P 500 will close 2022 down. I underestimated the extent of the Fed rate hikes as it ruins the world.

S&P 500 Valuations

Let's say the S&P 500 earnings grow by 10% to $228 in 2022. This would mean at 5,008, the index P/E would be about 22X versus a mean of about 16X and a median of about 15X.

The WSJ has the S&P 500 currently trading around 28.5X, while Multpl in the chart below has the S&P 500 closer to 30X. We won't have the full S&P 500 earnings number until companies report their 4Q2021 numbers in 1Q2021.

Whatever the true valuation, the S&P 500 will still be trading on the higher end of its historical range. The higher the valuations, the harder it may be for equities to perform. It's one of the reasons why Vanguard, GS, BoA, and a bunch of other financial firms have lowered their 10-year outlook for stocks and bonds.

S&P 500 forward P/E 2022

Shiller P/E Valuation

The Shiller P/E chart looks much more expensive. The Shiller P/E uses inflation-adjusted 10-year earnings data to minimize the impact of short-term changes. The all-time high in the Shiller P/E ratio was December 1999, when the figure reached 44.19. This high coincided with the dot-com driven rally in tech stocks of the late 1990s.

Today, we are close to an all-time high Shiller P/E, but it should decline in 2022 if earnings grow faster than the S&P 500 rises. I was working on the trading floor of GS at 1 New York Plaza from 1999 – 2001 and it feels more bubbliscious today than back then. The key is to hold onto your massive gains.

The mean Shiller P/E is about 17X and the median Shiller P/E is about 16X. Therefore, current valuations are expensive, even if the Shiller P/E declined to about 36X in 2022.

Shiller P/E 2021 and 2022 estimate

The combination of high valuations, a tightening Fed, three years of way above-average returns, and decelerating earnings growth are the main reasons why I'm not excited about the stock market in 2022.

I believe you can make better risk-adjusted returns in venture debt and real estate. Even I Bonds, with a guaranteed 7.12% interest rate, seems more attractive.

2022 Stock Market Forecast Confidence Levels

When making stock market forecasts, there are no guarantees. Therefore, let me share with you my confidence levels at various price increases for the S&P 500.

Negative appreciation: 35% confidence

Positive appreciation: 65% confidence (lowest confidence level I've had in years)

5%+ appreciation: 60% confidence (base case)

8%+ appreciation: 50% confidence 

10%+ appreciation: 40% confidence

I feel there's a decent chance the S&P 500 goes nowhere or down in 2022. After three strong years, we could easily see a -6.24% year as we saw in 2018. This is very different to the bullishness I felt at the beginning of 2021.

In comparison, I have 90% confidence the real estate market will return another positive year in 2022. As a result, much of my new capital will be invested in private real estate funds, venture debt, and venture capital. I'm focused on minimizing volatility while earning steady returns.

Historical S&P 500 Returns

Take a look at the chart I put together below. There is a pattern where after 2-5 years of strong gains, the S&P 500 takes a breather. We've brought forward our gains in 2020 and 2021 and I think we'd be fortunate to gain some more in 2022.

Historical returns of the S&P 500 index and 2022 stock market forecast

How I Plan To Invest In Stocks In 2022

I don't think we'll see a 20%+ decline in the S&P 500 in 2022 if the index does correct. However, I feel with 65% confidence there will be a 10% correction at some point and 90% confidence there will be at least a 5% correction at some point.

Therefore, it's smart to raise cash to take advantage of any corrections. Although my forecast for the S&P 500 to hit 5,008 in 2022 is uninspiring, a 5% return is still a positive nominal return. I also don't have strong enough conviction to think a greater than 10% correction is coming. Therefore, I plan to hold onto 90%+ of my positions.

Since 2012, I've limited my equity exposure as a percentage of net worth to 25% – 30%. The reason is due to my desire for less volatility and my preference for real estate. However, I've let the equity exposure increase to 35% given how strong the gains have been. Therefore, I will likely get more defensive in my tax-advantaged portfolios so I don't incur any tax liabilities.

35% may not sound like a big percentage to you. But to me, it is due to the bull market and aggressive savings. My public equity exposure alone is worth over 2X my entire net worth when I left work in 2012.

I think Financials and Health Care will do well. Regarding my favorite industry, tech, I expect the gorillas like Apple to still outperform. There's been some real carnage with some individual tech stocks in 2021 that I find very interesting. Namely, Docusign, Alibaba, Baidu, Teladoc Health, and Twitter.

With the S&P 500 down in 2022, the good thing is that it's easier to generate more passive income in a bear market! Further, high-yield corporate bond spreads are still reasonable, which shows positive sentiment for S&P 500 companies.

Confidence From Insiders

One interesting investing X factor to consider is what one of the best American investors who is privy to insider information is doing with her money. That person, of course, is Nancy Pelosi, Speaker of the House.

Nancy, along with her financier husband, Paul, have successfully grown their family's net worth to well over $200 million over the almost three decades she's been in Congress. With a relatively modest $223,500 income, Speaker Pelosi and Paul have created a top 0.1% net worth.

Based on the latest Congressional trading disclosures in December 2021, Pelosi bought at least $2 million worth of call options in names such as Alphabet, Micron, Roblox, Salesforce, and Walt Disney. I like her purchases in Salesforce and Disney after their respective sell-offs. As a shareholder of Alphabet, I also approve of her purchase.

If Pelosi bought millions of dollars in call options right before 2022, that gives me a little more confidence the stock market will end higher in 1Q2022 at least. You don't have to be a smart investor to make money. You simply need to follow what smart investors are doing with their money. Or you can invest in their fund, if they have one, e.g. Berkshire Hathaway.

Nancy Pelosi latest insider trades

S&P 500 Performance A Year After 25%+ Gains

Here's another positive historical indicator for the S&P 500 in 2022. The average return for the S&P 500 is 14% after it returns more than 25% the previous year. Only three years out of 17 years (17.6%) did the S&P 500 return negative.

If we return another 14% in 2022 to 5,433 on the S&P 500, inflation will likely stay above 6.8% as investor purchasing power skyrockets. Further, I suspect more people will quit their jobs because why bother when investment gains are doing the heavy-lifting for us.

It now feels like my forecast of only a 5% return in 2022 sounds conservative. But I'm sticking with it and I hope I'm wrong on the upside.

S&P 500 Performance A Year After 25%+ Gains

Other Wall Street S&P 500 Targets For 2022

For good measure, here are some Wall Street S&P 500 targets for 2022. I actually didn't look at them before I came up with my own 2022 stock market forecast. Therefore, I'm just as fascinated by their target prices as you may be.

BMO: 5,300

Credit Suisse: 5,200

Goldman Sachs: 5,100

JP Morgan: 5,050

RBC: 5,050

Financial Samurai: 5,008

Deutsche Bank: 5,000

Citigroup: 4,900 (raised to 5,100 on Jan 5, 2022)

Barclays: 4,800

Bank of America: 4,600 (Dang!)

Morgan Stanley: 4,400 (Double dang!)

So there you have it, you now know a variety of stock market forecasts for 2022. The forecasts are as bifurcated as I've seen them in recent memory. It'll certainly be interesting to see what 2022 brings!

If the S&P 500 hits 5,000 in early 2022, I'm taking some profits and reassess in another stock market forecast update. I'm determined to spend more of my investment gains in 2022 to live a better life.

Here are the 2024 S&P 500 target price forecasts by Wall Street. It's off to record highs if their forecasts come true.

Related posts:

A DIY Investing Guide

Stocks Or Real Estate: Which Is A Better Investment

2023 Wall Street S&P 500 Forecasts

Readers, what is your prediction for where the S&P 500 finishes in 2022? Are you bullish or bearish? How is your public investment portfolio and net worth positioned for 2022? Are you more positive on the S&P 500 or real estate? What are your favorite asset classes where you will be investing your money?

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39 thoughts on “2022 Stock Market Forecast: Uninspiring Upside”

  1. Lance Iamnot

    Given that U.S. equity markets only amount to 45% of the world equity markets, it seems that the U.S. markets are at all time high valuations compared to the rest of the world. Is 2022 the year to add more to my ex. U.S. exposure and reduce U.S. exposure? And, if so, where?

  2. Firstly, I feel the market will be up by 10% from here. Despite all the talk of rotation, big cap tech stocks will do well, go higher from here
    The financials and energy will go higher and the casualties will be the fast tech names with no real earnings
    Real assets will go up with the inflationary trend and so REITS will hold with reopening of the economy compensating for the rising rates
    I will buy the XLF XLE XLK VCR SMH regularly throughout the year TAc each small dip and reserve cash for buying individual blue chips at 5-10% corrections – I expect 3/4 of them with high volatility this year

  3. Happy new year ! Thanks for the great write up . Long time fan ! 90% of my knowledge in finance , I got from this website . Thanks

  4. Sam,
    I’m a big fan of your newsletter. Even though our situations are very different, you offer some very sound advice and make honest (maybe bold?) predictions about the market and how you’re preparing.

    That said, I have enjoyed your posts about harvesting some of our paper profits to enjoy life a little more while we can. I would love to see a discussion about how to optimize the net returns (minimize taxes) as we harvest some of our taxable gains. My wife and I have about $1.6M in two Roth IRA and a 401k and I will have a pension (lucky me, I know) of about $95k/year when I retire in 3 years and our kids college is paid for, mostly by them. We are in pretty good shape for a comfortable retirement so can be a little more aggressive with our taxable investments.

    We have $1.7M in a taxable brokerage account, of which $600k is long term gains. Is there a strategy to take some of that money off the table and minimize our tax bite? I understand it is only paper money until we cash it out but the thought of losing ~24% or more off the top hurts. We don’t own a house and never have, but expect to buy in 3-5 years when I retire and we relocate to a state still undetermined (probably South Dakota).

    I’m not looking for advice specifically for me, but a general article of how-to harvest some of the gains, even if just to establish a stronger cash position, might be of interest to your readers.

    Keep up the great work,

  5. Good update, Sam! I am a few months from age 65, but keep fairly diversified, and in buckets of Real Estate (~40% NW in 3 properties, NC and FL), Invested Annuity (17%NW), Higher Risk individual stocks I manage myself (13% NW), and 30% NW managed by Fidelity. I don’t look at Alphabet, Apple, Microsoft, Amazon, etc as “growth” stocks as they are ubiquitous and as necessary and useful as toothpaste and toilet paper, only getting more so and I own them as core conviction stocks!! I see internet and cyber security, solar energy, digital health as good bets now and for the foreseeable future. I think you are pretty close at 5% or less on S&P, so I have cut back on Tesla and other stocks which are great but have been overvalued near term. I have trimmed solar as well and will jump back in later. I have a few crypto which have done well on small bets. Thanks

  6. Every time a small business goes bankrupt, major corporations profit increases. Technology also lowers labor overhead. Is it a ridiculous idea to view historical valuations based in the Industrial Age as outdated?

  7. Great article as usual! While I highly respect your opinion I certainly hope the stock market does better than your forecast for 2022. As for what I think, I personally believe the stock market will continue to do well in 2022, to the tune of a 10% increase. I think the positives will outweigh the negatives. While the COVID pandemic continues I believe with the vaccines combined with increased working from home we are well positioned to see the continued bull run from the last three years. As for real estate I agree with your prediction that real estate will continue to have a positive year. Given the high demand for single family homes and low inventory the current trends will likely continue. I continue to be heavily invested in the stock market as I also live in San Francisco and have not yet taken the plunge to purchase real estate for the current prices. Keep up the great content!

  8. Either P/E’s will forever be detached from reality (thus becoming an obsolete metric) or a correction will bring everything back down to normal. Only those with a crystal ball will know the truth. Even though I believe everything is overpriced per the belief P/E is applicable to today, there is no alternative (TINA).

    The variance of earning expectations for 2022 by Wall Street analysts is at an all time high. No one has a clue what’s really going to happen. Thus, I’m going to use Nancy Pelosi’s insider trades as the best bellwether of a bull at least in the short term (1H 2022).

    Sam, I am a long time reader of your blog and genuinely curious about your thoughts on cryptocurrency. I have not yet invested in crypto, but am wondering if it really is a bona fide investment (and potential currency) of the future. The S&P return was a whopping 27%. However, Bitcoin returned 73% YTD. Meanwhile, SF real estate averaged a meager 7.3% return and annual taxes on property if not grandfathered in is fairly costly. Perhaps it’s the ubiquitous greed or FOMO, but I’m considering investing at least a few percentage points of my net worth so that I’m at least somewhat exposed to crypto.

    1. Sam, I would also love to see a post on crypto, BTC and related yields in alt coins and yield farming. Also, curious your take on the BTC as digital gold argument. Thanks

  9. Great article, Sam. I really appreciate the insight.

    In 2020, my wife and I allocated 100% of our free cash flow towards equities, specifically the S&P 500 and the nasdaq.

    We purchased a SFR home in Jan 2021, and leased our Midtown, Atlanta condo at a smidge above break-even. Once we stabilized after the move (tons of unexpected costs associated with moving) we started investing free cash flow back in the S&P500 (saving ~30% AT income)

    For 2021, I am expecting the SFR real estate markets to cool off, but continue to rise at around 5-7%. I think rental prices have plenty of room to grow given real estate is a lagging asset class. And I hope we see a rebound in in-town condominiums as the pandemic subsides and people begin to learn how to live with this endemic.

    I think there is a 50/50 chance the market closes the year lower, but I don’t have enough conviction to rotate out of the market. I will continue to buy and hold for our two index funds.

    To take advantage of the anticipated increase in rentals and property appreciation, we went under contract for a duplex which wasn’t listed on the MLS in an A+ area in Atl with strong risk-adjusted returns. We used the Bank of mom and dad for the down payment.

    This website has been instrumental for growing our household networth. When I started reading your blog in 2018. My wife and I had a combined NW of $150k. We just finished the year with $720k and have hopes of breaking $1M next year before we become first time parents.

    Thanks for everything, Sam. I hope you and your family have a prosperous and healthy 2022!


  10. Here is my financial predictions Sam and my course of action(s)
    -Make the Big 6 (Google, Apple, Amazon, Microsoft, FB And Nvidia) close to 45-50% of my portfolio. It is along with Tesla (so maybe big 7) a “risk or reward” strategy but even if the pundits are right and Amazon goes to 4500, the strategy worked as don’t see the others garnering any less than 8-10% increases.
    -Drive the rest of the market with sustainable type dividends as say that because dividends need to be watched because 5% today can be 1.25% tomorrow. My dividends are what drive my future purchases as my reinvestments. However, this year being 65 will use them for living expenses shortly.
    -Real prediction 10-12% stock market overall gain and as high as 15% with right equities. “Weed and Pull” the dogs cannot be over stated.
    -Real Estate; have one rental and looking for my primary residence to buy when right situation. Been renting this year after house sold but skeptical right now on inflated properties that need tons of love and repairs.
    -Art-explored your suggestion and gentleman actually called me from New York and used your name! Just have to figure out the hows and whys. Seemed like a great diversity to RE and stocks.
    -debt-does it pay to payoff a 2.5% loan of only 149k left and have all the rent as total cash flow. According to my man Sam this is negative interest loan! Please advise Sam, but think I know answer.
    -Tzedakah Or GIVING-big in our household and will continue to be!
    Thank you and hope this is a good overview. We are self made couple after many years of “living under our means”.

    Happy 2022 to your family and yourself!
    PS Sam-nothing wrong as goal to get to the FU money level as striving for that.

  11. My guess is we would go up by 10% on the S&P.
    Covid is expected to be downgraded to Endemic by mid 2022.
    Even if interest rates start to go up, it would be still very low, compared to most other countries.
    Supply chain issues is expected to be resolved soon.

  12. Sam, two questions.

    Why do you think the stock market looks bubbly more so today than in 2000? I see so many names get corrected YTD like Robinhood, Docusign, Peloton, and more. Other names at least have earnings to back them up (though not as much as they should have, I’m talking about TSLA). In 2000, no earnings but a “.com” at the end of the name meant 100% return days, no?

    Do you think that inflation will stay low, provided that equities don’t increase? My favorite restaurant places that I frequent all happily raised their prices more than once and so I haven’t seen a slowdown… I hope you’re right that inflation does stay low but I’m not sure if it will stay low.

    Thanks for another thought provoking post.

    1. Thanks for your questions! Before I answer, can you share your thoughts on the stock market and real estate market for 2022? How did you do in 2021 and how are you positioning for this year? I’m really trying to get more people to share their perspectives after sharing mine. Thanks!

      1. David @ Filled With Money

        I’m not sharing my thoughts on the real estate market because I have no opinion. I don’t know where to start to even begin forming an opinion. It’s why I didn’t ask you about your real estate forecasts.

        I shared my perspectives and the reasonings behind the questions. I returned the S&P’s returns in 2021 and I’m gaining other people’s perspectives and rationale in order to position myself for 2022. I’m undecided on what to do for the year.

        I personally will be ridiculously happy with *any* positive returns. But I believe equities will generally end negative next year because valuations are so expensive but not so bad when compared to 2000’s.

        I hope this helps.

  13. Sam, great analysis as usual, and my feelings for 2022 pretty much mirror yours. I moved 1.5M out of a former employer’s 401K and into my Fidelity account in December to give myself some dry powder to invest in 2022. I plan to be patient with putting that money back to work and will buy the dips that are sure to come.

    I will turn 65 in 2022 so I plan to make investments in the S&P 500 and its equal-weighted sister so that I am not too technology-heavy in the index and probably a couple of other mega-cap funds since I expect good earnings and cash flow generating companies to perform better in a rate-raising environment. I’m also looking at dividend-heavy ETFs like NOBL and REITS and particularly planning to invest some in a Farmland focused fund. I will do some nibbling with Construction, Semiconductors, Energy, Financials, Industrials, Consumer Cyclical and Discretionary and Healthcare and since I am domestic heavy in my portfolio, I will look more global as well.

    We’ve had quite a run the last 3 years so picking winners in 2022 won’t be quite as easy as it has been.

  14. Game plan for 2022: sell monthly uncovered OTM calls on overvalued companies that are losing money (AMC, GME, PTLO, LCID, etc). Sell OTM puts on undervalued companies with strong fundamentals trading at FCF yields >10% (banks, financials, MLPs). Synthetic long option combo trades on companies with significant upside potential like LICY (free long positions). Made ~90% annual returns over the last couple years with this strategy and it continues to perform beautifully. Dynamic investors who can separate quality value companies from overvalued companies should easily be able to outperform the indexes in 2022.

  15. Here’s my forecast.
    1. Real Estate continues to move higher with the biggest growth coming from the Sunbelt (my opinion is clouded by comments from Fundrise. Thank you for turning me onto to them)
    2. Equites trading in a range with limited upside and downside as much as 20%. While the weighted indexes have continued to set new highs, if you look under the hood, breadth has been weakening for a while + you could make the case that we topped a while ago. The one thing that would change my opinion is if breadth strengthens dramatically. Given that we’ve run so far already while also facing potential headwinds (rising rates), I think it’s unlikely.

    I agree with you about real estate. This feels like it did early in the cycle of the from 2002-2007’. Hopefully we just don’t go parabolic again

  16. Best wishes for everyone in 2022!

    Great article and ideas!

    (Imho) I personally don’t really know what 2022 may bring but can say in the long-term (barring certain “black swan” events – ie pandemics, wars, hyperinflation, asset seizures, natural disasters, “dark ages”, etc) things will likely continue to improve overall!

    Therefore, I am drawn to “invest” for general positive growth in societies that mostly cherish competence, peacefulness, honesty, openness, hard work, innovation and freedom while diversifying/hedging for the most likely “black swan” events with a smaller portion of the pie :)

    That being said I feel personally optimistic about 2022, although am preparing for possible continued volatility, “web/tech 3.0”, and also “disruptive” tech/innovations/governments/etc.

    Best wishes!

  17. Predictions for stocks in 2022: oil stocks will go up a lot as will crude oil prices – there has been way too much underinvestment in that sector which contineus to be the case.

    Second prediction is that big tech aka Google, FB, MSFT, NVDA will continue to outperform even if inflation continues to rip. Why? Those companies do not really have rising input costs and are very valuable for businesses to use to reduce their costs.

  18. The other Bill

    Last year my guess was negative returns. I was only off by 30 percent :) This year I’m guessing positive returns. Look out below! I have been lighting up on some of my individual stocks as of late. I know market timing is a fools game but I want to have some cash in case we get a decent decline. I put buy orders in for amzn at 3000, 2800 and 2500. Boeing at 150. Altria at 40. Nvda at 200 and the S&P at 4000. If some of these orders hit it really helps take out the sting I feel in a declining market.

  19. Manuel Campbell

    Hi Sam,

    Happy new year !

    I pretty much agree with your expectations. I think the S&P500 will be somewhere between -10% and +15% in 2022. Lots of volatility, with not much upside potential… But I don’t expect a market crash either.

    I think the big theme for 2022 will be market rotation. Some stocks are extremely overvalued (like Nvidia, Adobe or MasterCard) and lots of stocks are extremely undervalued (like Verizon, Chevron or Coca-Cola). Since the big names are so big in the index, it will be very hard for the S&P500 to perform well even if many stocks rise by 30-40%.

    The second big theme for 2022 will be earnings growth. I think everyone will be surprised by how much companies can grow earnings. But with lots of stimulus, extremely low interest rates and higher wages and benefits, there is not a lot of push back against price increases.

    Also, I think the Shiller P/E is not applicable now. Since it is a 10-years average, it only works in a stable currency environment.

    We have to view the “US dollar before 2020” and the “US dollar after 2020” as two different mesurement metrics. The same way as we couldn’t look at the French Franc historical 10-years earnings and conclude in 2002 that “the prices in Euros are undervalued and therefore the stock market should go up”, we cannot look at earnings prior to 2019 and conclude “the stock market should go down”. These are erroneous assumptions.

    2022 will be an interesting year for earnings reports and see how companies perform in the “new normal” after covid, with all these stimulus spendings and ultra-low interest rates.

    My five biggest positions entering 2022 are centered around the theme of market rotation from growth to value and higher inflation :
    1 – Couche-Tard (convenience stores – 6.2%)
    2 – Suncor (oil – 5.2%)
    3 – BCE (telecom – 4.3%)
    4 – Barrick Gold (gold – 4.0%)
    5 – TC Energy (pipelines – 3.8%)

    Big tech is not very far in my portfolio in positions 6 & 7 with Apple and Tesla at 3.5% each. We can argue as much as we want about Tesla’s valuation, but it’s just an incredible company. So it will remain a permanent holding for me going forward. Same as Apple.

    My performance in 2021 was 25.8%, after a 18.8% return in 2020. Not that bad, but I could have done a lot better in this environment.

    My stock portfolio allocation entering 2022 is 66.1% of total net worth. I have no bonds, since 2009. I have to be more conservative in my equity investments since it is such a large portion of my net worth.

    Wish you a great year 2022. All the best !

    1. “ market rotation from growth to value and higher inflation”

      I think this is the right call, and I fear my tech names will underperform. I just don’t want to sell due to taxes and my current strong income. If I had no income, I might sell more. Hence, my focus on tax-advantaged accounts.

      I really appreciate you sharing your thoughts and your positions. Very insightful and some thing for me to think about. Thanks!

      1. Manuel Campbell

        Really appreciated, I like your insight as well !

        One option I like is to do some “trimming”, particularly when it’s a “very good company” I would like to keep forever.

        Instead of selling everything (binary thinking), I sell a small or medium portion of my holding, let say 10% or 20%, or maybe more depending on the situation, then keep the rest permanently. This has the advantage of allowing me to buy back a company I like at lower prices in case there is a particularly harsh selloff – let say 40% to 50%…

        It’s kind of the same as the “rebalancing” done by mutual funds.

        If you are already confortable with your actual positions, then there is nothing to do. But if you are concerned about a potential selloff, then you can do a little “trimming”. Your portfolio will continue to grow if there is no pullback. And it will grow even more if there is a pullback and you have the opportunity to buy back at a lower price.

        I always try to consider taxes as a secondary matter, although I am quite tax efficient as well. The most important is the financial decision (buy or sell). A stock that drop -50% is a -50% loss no matter how much taxes are saved. Tax savings will never compensate for 100% of a financial loss. So, the government should always be secondary in our mind.

        Also, I try to think about taxes on investments as an form of “prepayment” rather than a “penalty”. If I pay taxes “now”, and the investment decision was a good one, this should allow me to pay less taxes in the future.

        For example, if I sell 20% of a stock and pay a 5% of my position in taxes (assuming a 100% gain – multi-bagger – and 25% tax rate), this mean I can keep 80% of the stock, never pay taxes on that portion and have 15% of that position in cash.

        If the stock drop unexpectedly by 50%, the 15% cash could be used to buy back more shares. Since the price is halved, the 15% cash represents 30% of the initial position. In that case, I would end up holding 110% of the initial position, plus have paid taxes on 20% on the position (by an increased cost basis).

        So this is a win-win in both cases.

        But this is only if you consider the possibility of selling part of your position. You may as well keep it all if you have the patience to hold for the long term. They are all great companies and will probably do fine for the next 5, 10 or 15 years.

        So the question is really, will they go down or not. And I’m really not sure about that. They are not as overvalued as other stocks. They could just move sideways for a while. In that case, it’s not really worth selling.

        You are lucky, if you have some selling to do, we are beginning a new year. So you have the opportunity to keep the cash for a full year before taxes are due.

    2. “I think the big theme for 2022 will be market rotation. Some stocks are extremely overvalued (like Nvidia, Adobe or MasterCard) and lots of stocks are extremely undervalued (like Verizon, Chevron or Coca-Cola). Since the big names are so big in the index, it will be very hard for the S&P500 to perform well even if many stocks rise by 30-40%.”

      Agreed, I’ve been overweighting Russell 2k, S&P 500, Value index funds over Nasdaq in newer positions the last few months for this reason. The market gains have been driven so much by a small subset of stocks that its possible we could have a flat overall market even if 80% of stocks are up 10%+ this year but the big dogs are all down 5-25%.

      My public equities (+22% in 2021) underperformed due to 35% in bonds & cash but my real estate portfolio had ~100% gains last year due to leverage and insane market appreciation, especially on a couple of my properties so had a blended gain of about +50% in 2021.

      Like Sam, I expect RRE to continue to perform well (but lower than 2021) in 2022 and equities to be modest gains so am modeling about +20% average this year (counting leverage) in aggregate with almost flat equities.

  20. Roy David Farhi

    What I am also seeing in the stock market as you are alluding to as well Sam is that 50-60 or more % is devoted to these “SUPER” stocks. By that I mean the Apples, Alphabet’s, the Nvidia’s, FB, Amazon and Microsoft. I think in order to achieve real worth in 3/5/10 years you have to have the engines to get there. As far as dividend players and payers, I think the afficionados who preach those well are super diligent to their choices and oft times will give up growth to have the steady Eddie. But the dichotomy is you have to have the growth so your “million dollar’ or 2 or 5 or 7 portfolio produces outlandish income because 5% growth on dividends in a 5-million-dollar portfolio says I am living large for the rest of my life!

    1. I think I understand what you were saying. I feel if you’re under 40 years old, Most of your position should be in growth stocks versus dividend paying stocks. It makes sense because you want to build your financial not large enough so you can generate dividend income in the future. Further, while you are working, your income is strong so you will pay a higher tax rate potentially on the income.

      Dividends stocks are fine. But you want to invest in growth stocks more in a bull market. So I’m expecting dividends stocks to do much better in 2022 as growth slows.


  21. Roy David Farhi

    Like Tom Lee as he is bullish but also realistic and pragmatic in his approach to the Market.

  22. Yeah… I think 2022 largely hinges on whether the market believes the Fed or not. I think a few structural pillars still remain intact in the form of the TINA trade and continuing global growth, including the companies within the S&P. According to Yardini Research, we could be realistically looking at 8% 2022 growth and 10% for 2023, which are still healthy clips.

    Having said this, I don’t know that the Fed makes good on its rate hike and tapering rhetoric lest we forget about the debt service on our national deficit and its potential impact on the housing market respectively. Should the Fed raise rates AND taper, this could really impact the housing market because the FED actively buys MBS under QE. All of this coupled with Q4 midterms. Bottom line is they might raise rates 1 or maybe 2 times but stop there- don’t see them as wanting to put themselves in a position of getting accused of influencing the elections in weaker consumer spending or a tanking stock market.

    I would tend to gravitate to the 5050-5100 range (I think Tom Lee said 5100 as well). The real key is buying the 2022 dip, which I think will be much more sizeable than for all of 2021. If it were to dip 10%+, we could be looking at 2022 outstretched returns from there.

    1. The Fed is handcuffed. It had to say it was tapering/tightening in order to prevent a ridiculous bubble and help tame inflation.

      But the Fed is on our side. They will be flexible and not overtighten IMO.

  23. Thanks for this Sam!

    I like to keep track of everyone’s predictions every year and see who comes closest. I really appreciate your analysis and your 2020 prediction helped me almost perfectly time my daughter’s 529 plan contribution.

    The person that came closest this year was Tom Lee @fundstrat – he’s a regular on CNBC and he predicted 4800 on the S&P. Pretty close for 2021. He’s predicting 5100 for 2022 with a fair amount of volatility and a decent correction (10%) sometime during the year. Also BMO is predicting 5300 for those that want the most optimistic forecast.

    1. So great to hear about funding your daughter’s 529 plan in a timely manner!

      5,300 would be amazing. If we get there, I might just have to shut FS down and sit Mai tais on the beach all day after tennis and softball!

  24. Sam, buy the correction? Would I buy the ETFs that track the market, rather than individual stocks? I’ll have 250k soon to invest as I want.

    1. I will be. Bigger the correction, the greater the upside to my target of 5,008. I’m confident there will be 5-10% dips in 2022.

      But I don’t know your portfolio composition and goals. So please talk to a professional.

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