There is no denying the impact that macro trends and events have on stock markets. We have seen that in the last two years. One of the biggest examples of this is the fiscal stimulus of recent times. In a bid to battle the impact of lockdowns, governments around the world supported business in various ways, including by pumping money into the economic system. This resulted in a global rise in commodity prices and closer to home, in a property market rally. As these fiscal stimuli are being withdrawn, we are already witnessing softening in these sectors. And in 2022, I expect three such big trends to impact the stock markets.Â
Inflation will remain high
Perhaps the most obvious of these is inflation. Price rises have been accelerating through the year. As lockdowns were eased, there was sidden, higher demand for products and services. And the mismatch with supply increased prices. Along with this, oil prices have also been on a tear. And since these are inescapable costs, a lot of listed companies have talked about cost increases when releasing their results. The trend is expected to continue in 2022 as well. And that means it could be a drag on broader stock markets next year. But I bought oil producers’ stocks like BP and Royal Dutch Shell to counteract the impact of inflation on my portfolio. And I intend to continue holding them through next year.
Interest rates to rise
As a result of rising inflation, interest rates are also expected to continue heading upwards. In fact, they have started rising already. The Bank of England recently reacted to a spike in inflation by increasing its interest rate by 0.15 percentage points to 0.25%. Commercial banks could follow suit. This would be bad news for indebted companies, of which there are many (big and small) in the post-pandemic environment, as it means their debt-servicing costs will rise. But it is also a positive for segments like banking. The banks have suffered quite a bit during the pandemic. My picks among the major FTSE 100 names include Lloyds Bank and HSBC, which are on my investing wishlist for 2022.Â
Slow recovery could impact stock markets
Last but not least, is the impact of these trends on the global recovery. The economic recovery has already been quite slow in 2021. And to that if I add continued pandemic-related concerns, high inflation and rising interest rates, I think it is fair to expect that the recovery may not exactly be a boom. In fact, it could continue to be tepid. And that to me is a sign to consider defensives closely like healthcare and pharmaceutical companies. I have been a happy investor in AstraZeneca for instance and recently even increased my holding.Â