An animated gif show a sunlit scene of a person standing in front of an office building with other buildings in the distance. The words Financial Outlook 2022 appear on screen.
An animated gif show a sunlit scene of a person standing in front of an office building with other buildings in the distance. The words Financial Outlook 2022 appear on screen.
Financial Health
January 21, 2022

What does 2022 have in store for you?

Wells Fargo experts discuss how inflation, the economy, and the stock market might play out this year.

What might we expect from the U.S. economy? When might we get relief from high inflation? Is now the time to add or reduce portfolio risk? Are we headed toward a stock market bubble? Darrell Cronk, chief investment officer for Wells Fargo Wealth & Investment Management, and Jay Bryson, chief economist for Wells Fargo’s Corporate & Investment Bank, shared their opinions on these questions and more in a lively discussion on the economic outlook, opportunities, and risks for 2022. Watch their discussion and check out some of their takeaways below.

U.S. economy still going strong

Although we’re coming into 2022 with momentum — 2021 was the strongest year since 1984 — Wells Fargo experts expect the growth rate to slow from 5.5% to 4%. But keep in mind, “4% is a really strong year,” according to Bryson.

Inflation rates to taper off

A key theme of the Economic Outlook is the scorching hot demand for goods across virtually every part of the economy, and this spending surge has bid up goods prices. Last year’s average inflation rate was 7%, but “we think over time this year, as the supply bottlenecks kind of work themselves out, that will come down” to 5%, said Bryson. Housing prices have exploded, and “we may be on the cusp of seeing maybe some services inflation, and maybe wage and labor inflation is the story of 2022,” he added.

The white-hot job market is both good and not so good. “A number of people have dropped out of the job market, and that's keeping it very, very tight,” explained Bryson. “[This] is pushing up wages, which is good. We all like higher wages, but it can also potentially lead to a cost-push inflation.”

The stock market, interest rates, and your portfolio

Last year was the third in a row with S&P 500 Index returns of 20%. “We think the stock market can do well this year, and earnings can grow low double digits,” said Cronk. “But we do think you want to have exposure. It's too early to reduce the risk in your portfolios heading into this next year, in our opinion.”

And while the stock market may be due for the typical 5% to 10% correction, Cronk doesn’t see a bubble that could burst and bring valuations down in 2022.

Cronk and Bryson will both be watching to see if the Federal Reserve begins to raise interest rates, which we haven’t seen since 2018.

For fixed income portfolio, Cronk said it’s time to play defense. “That just means you need to shorten your maturities or shorter duration exposure, and go up in credit quality. Make sure that you don't have some of the more junky, really deep high yield type exposure or too much of it in the portfolio.”

Keeping an eye on China

“China is a very indebted country. There are a lot of property developers with a lot of debt,” explained Bryson. “If the world’s second largest economy were to have some sort of debt crisis, it won’t put the United States into a recession. But it will have a spillover effect to the rest of the world. At a minimum, it would cause investors to become risk averse in that part of the world.”

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