Where equity investors should consider investing their money in 2022

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After several years of outsized gains in the stock market, investors may be hoping that 2022 will once again be seen as déjà vu.

Don’t count on it. While future performance cannot be predicted with certainty, many financial advisers expect returns to come back down to Earth.

“We have told clients to expect a lackluster year in the stock market and in portfolios generally, with persistently high inflation, slower economic growth and interest rate hikes,” the planner said. chartered financier Shon Anderson, president and chief wealth management strategist of Anderson Financial. Strategies in Dayton, Ohio.

So far this year, the S&P 500 Index – a broad measure of the condition of US companies – has posted a total return (price gains plus dividends) of around 29.2%. This is on the heels of 18.4% in 2020 and around 31.5% in 2019 (and a loss of over 4% in 2018). Over time, the annual average is around 10%.

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The Dow Jones Industrial Average is showing a total return so far this year of 21.1%, after 9.72% in 2020 and around 25.3% in 2019 (and a loss of 5.6% in 2018). The tech-laden Nasdaq Composite Index, meanwhile, has gained 23.2% so far this year, after 44.9% in 2020 and around 36.7% in 2019 (and a loss of 2 , 84% in 2018).

While 2022 may end with lower returns – that is, single-digit gains, perhaps – the economy is expected to continue to grow, albeit at a slower pace than at the start of this year. the year. In the third quarter, gross domestic product – which measures all economic activity – grew at an annual rate of 2.3%, according to the Bureau of Labor Statistics. This follows annual growth of 6.5% in the second quarter and 6.4% in the first quarter.

With this slower growth as a backdrop, coupled with persistent inflation and the Federal Reserve’s latest expectations that interest rate hikes are underway next year, some industries or market sectors could outperform. others.

“The environment is ripe for caution and defensiveness… but there are still opportunities to make money,” said CFP Matthew McKay, investment analyst at Briaud Financial Advisors in College Station, Texas.

“Typically this is an environment where utilities, healthcare, and consumer staples can outperform, in general,” McKay said.

International equities, both in developed and emerging markets, could also outperform, he said.

“In the second half of the year, many countries are expected to show year-over-year growth, which would be quite positive for these two big markets, especially given the reasonable multiples at which they are valued,” McKay said.

Real estate investment trusts could also outperform the broader market, Anderson said. REITs, as they are called, are companies that own and / or operate properties such as office buildings, shopping malls, apartment complexes and warehouses.

“Especially for REITs, we believe there are more opportunities in data centers, self-storage and healthcare [facilities]”said Anderson.

Homebuilding-related stocks can also be a highlight, said Joseph Veranth, chief investment officer and portfolio manager at Dana Investment Advisors in Waukesha, Wisconsin.

“There is still a huge pent-up demand for housing,” said Veranth. Favorite picks include home builder DR Horton and Fortune Brands Home & Security, whose products include those related to plumbing, cabinetry, exterior and home security.

Industrials stocks can also benefit from a strong economy and additional spending on infrastructure or defense, said CFP Barry Glassman, founder and chairman of Glassman Wealth Services in Vienna, Virginia. Typically, companies in this industry manufacture and distribute goods used by industries such as construction, engineering, aerospace, and defense, or they may be involved in transportation and logistics services.

Additionally, Glassman said, his company is focused on total shareholder return – that is, stocks with constant dividend payouts, as well as stock buybacks. The latter usually raises a company’s share price because there is less stock in the market after the buyback is completed.

“I can’t imagine the S&P continuing its impressive three-year run, but even if the index isn’t doing as well, I think there are some stocks that could do better,” Glassman said. “I think what will prevail is profitability and stable earnings.”

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