High Hopes In Times Of Crisis: An Outlook Of The US Market For 2022

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Investors greeted 2022 with a rising US inflation rate and a weak reporting season. However, around mid-March, the US markets began to go back up. The experts of Freedom Finance explain why 2022 could bring the growth of the US stock market and an upsurge of new IPOs.

US stock markets await moderate optimism and new IPOs

Contrary to what one may think, the primary reason for the rise of the US market is that corporations continue to increase their profits and revenues, and not the Fed’s "money printer". Moreover, the Fed is planning to introduce the “QT plan” which would rapidly shrink the balance sheet. While this certainly might weaken the market for Treasury securities, the stock market is most likely to keep growing. This could happen due to the high inflation rate, as the revenue and the profit of companies will increase in proportion to the price growth.

Additionally, analysts at Goldman Sachs raised their share buyback forecasts for 2022 to a record $1 trillion, up 12% from last year, when buybacks helped the S&P 500 rise 27%. Experts noted that the scale of buyback activity is now close to an all-time high, with the number of active programs double the average. An enormous amount of money will hit the stock market after record profits in 2021, pushing the indices up. And against this backdrop, the weakness phase of the IPO segment will probably come to an end.

One cannot ignore the geopolitical crisis and its potential impact on the global economy’s growth rate. However, given the fact that the US economy is still in great shape, Freedom Finance analysts do not expect a recession in the U.S. economy in 2022-2023 and remain fairly optimistic about the stock market's prospects for the rest of this year.

Catalysts for US stock market growth

Inflation may peak as early as the second half of 2022. This might happen because state aid, which was paid out in the US at the start of the pandemic, is no longer being paid, and the previously compensated funds have been spent in full. At the same time, supply chains have resumed, and supply and demand are returning to normal.

Corporate profits are slowing down but continue to climb. When prices grow, a company increases its revenue, and the demand for its securities increases. As the US is not directly involved in the war in the current crisis, the US stocks are rising in price, while money is losing value. However, on the global level, inflation is not a disaster for the stock market; economic recession, unemployment and industrial shutdown are far worse. In addition, price rise and digitalization foster the growth of US companies, albeit slow.

Digitalization continues to change the world. In moments of upheaval, its demand for hard currencies and US assets becomes record-breaking.

Companies in the software and fintech segment have lost a considerable share of their value over the past 6-9 months. Still, they have a significant growth potential and are not disappointing investors with their financial results. A new earnings season could lead to a rebound. In addition, issuers are objectively unaffected by the geopolitical situation in Eastern Europe and are growing rapidly in Western European and US markets. 

What about the IPO market?

According to Bloomberg and Fortune, the British and US IPO markets were having their worst months in about a decade. However, the IPO market began to drop in February 2021, long before the ongoing crisis. The last similar period of weakness was in 2015-2016 and lasted about a year (assuming the same duration approximately for the current period). A brief look at the Renaissance IPO ETF shows that in mid-March 2022, the ETF has finally overcome the downward trend which lasted since November 2021 and had been preceded by a lengthy period of stagnation beginning in February 2021.

In other words, Freedom Finance's analysts expect the beginning of the recovery process in Q2 of 2022. For this year, the analysts assume that there could be a “bullish” scenario, the peak of inflation, the recovery of tech stocks, and the inflow of money into stocks and IPOs.

How to invest in US, EU and Asian securities?

European investors could benefit from more than a million trading instruments on Freedom24 investment platform. The platform has transparent and relatively low commissions for buying stocks and ETFs and aims to provide the best conditions in Europe for buying US options - $0.65 per contract. And, what’s more, Freedom Finance says it is the only broker in the EU market to offer clients the opportunity to buy new stocks at IPO prices.

Images provided by Freedom Finance

Please note: Investments in securities and other financial instruments always involve the risk of loss of capital. Investments in IPO may involve additional restrictions. The forecast or past performance is no guarantee of future results. 

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.