Looking Ahead

The release of J.P. Morgan Private Bank’s 2022 Outlook report is a good reminder that it’s time to consider your own financial outlook in the New Year. The report’s title, “Preparing for a Vibrant Cycle,” is encouraging, but to get there, it’s important to partner with your financial advisor to ensure you have the information needed to take advantage of promising opportunities and understand the risks a new year inevitably brings.

J.P. Morgan Private Bank’s outlook is predicated on shifting policymaker priorities, healthy consumer and corporate balance sheets, and continued innovation. However, it’s critical to monitor the risks, especially the monetary response to inflation, China’s economic transition, and COVID-19’s transition from pandemic to endemic disease. Overall, the Private Bank forecasts compelling returns for goal-aligned portfolios, with stocks looking more attractive than bonds and bonds more attractive than cash.

Pete Chilian, Dallas Market Manager at J.P. Morgan Private Bank, says in a time of uncertainty, one thing that is certain is that the Federal Reserve is focusing on inflation. “We have been living in unprecedented times in many respects,” Chilian says. “Investor focus has shifted squarely to inflation, and we are seeing numbers we haven’t seen in many decades. Is it transitory or here to stay? If you dig into the inflation data, a few things stand out. First and foremost, the Fed has quickly pivoted to focus on inflation, and it is clear there are going to be rate hikes in 2022 starting as early as June.”

With this in mind, how are Chilian and his team of Private Bankers stepping in to guide clients? “If you think about it as it relates to investment portfolios, much of this is already priced in,” he says. “With current inflation running at 4.9 percent—the highest since 1991—the bond market has now priced in two or three rate hikes next year. We are already starting to rebound from late November sell-offs and the market is starting to recover. We will continue to manage portfolios for the long term and not react to quarterly economic data.”

The following are the key issues J.P. Morgan Private Bank believes will drive markets in the coming year:

Shifting policymaker priorities. Fiscal support targets new goals now that the emergency is over. With fiscal stimulus likely past its peak, longer-term spending proposals on infrastructure and other projects are now in focus. These plans are set to allocate trillions of dollars in infrastructure spending, high-speed internet systems and clean energy, and fund other priorities such as childcare and healthcare.
Healthy businesses and consumers. The aggressive policy response to the pandemic prevented a self- reinforcing downturn and supported household and corporate balance sheets. Looking ahead, we see continued financial strength for both. Household net worth is at all-time highs, debt service payments are at all-time lows, and consumer sentiment has room to recover. Across the developed world, household savings are elevated. U.S. consumers saved almost $2.5 trillion in excess of the pre-pandemic trend.
Continued innovation. Healthcare innovation delivered powerful vaccines with astonishing speed. Policymakers and corporations remain committed to investment in climate change mitigation. J.P.

Morgan Private Bank believes these trends will continue to drive research and development, investment, and value creation.

J.P. Morgan Private Bank’s predictions for 2022’s top risks include:

Inflation and monetary policy. Some global central banks have already embarked on a rate hiking cycle. Investors are starting to ask when the Fed will join the party. The market now suggests that liftoff will happen in the middle of next year, and that short-term rates will approach 1% by year-end.
China’s economic balancing act. For many years, Chinese growth was fueled by easy credit, especially in real estate. Now, growth is slowing significantly. Already, the economic and market fallout from this shift has been severe.
Coming to terms with the COVID-19 virus. The bad news is that COVID-19 seems likely to become an endemic disease; humans will have to continue to adapt to it. The good news is that vaccinations, immunity gained from prior infection and new treatments all reduce the risks associated with spread of the disease. While the path of the coronavirus has proven very difficult to predict, investors now take the uncertainty in stride.

“Equities, as well as bond yields, continue to signal that the Fed is getting monetary policy right,” Chilian says. “While the Fed has been pretty clear about how to navigate in 2022, we expect a bumpier ride for markets. Volatility is here to stay in the intermediate-term. We expect the virus will continue to have a diminishing impact on economies and markets, even if certain sectors remain vulnerable to an increase in COVID-19 cases. But over a longer horizon, we see the foundation for a far more vibrant economic environment in the developed world than the sluggish growth and weak productivity that characterized much of the 2010s. This could have important consequences for investors, especially those who are still positioned for a reprise of the previous cycle.”

As always, to weather market changes and inflation, it remains critical to choose a financial advisor you can trust and who can guide you based on your personal circumstances and portfolio. “It is important to partner with your financial advisor to ensure you have the information needed in seeking to take advantage of promising opportunities and understand the risks a new year inevitably brings,” Chilian says. “J.P. Morgan Private Bank will be doing this individually and throughout the year with curated content and events so that we canvas our clients throughout the month of January and beyond.”