3 Investors Discuss Their Stock Market Predictions for 2022

No one can predict the future, but it is fun to try. In this segment of Backstage Pass, recorded on Nov. 19, Motley Fool contributors Toby Bordelon, Rachel Warren, and Nicholas Rossolillo discuss some recent market predictions by Wall Street for the new year and share some predictions of their own.

Toby Bordelon: Let's start with this one, guys. I know we're almost in December now, not quite, I guess we're only about halfway through November, but we're getting close, almost Thanksgiving.

That means it's time for Wall Street analysts and TV personalities to start making their market predictions for 2022, even though we're not done with 2021 yet. The gist from what I've seen is that, I've seen some target levels for the S&P 500 at the end of next year, end of 2022. People are expecting some slowing growth, but maybe still above-average growth for the economy.

I've seen S&P targets around 5,100, maybe a little bit more and maybe a little lower. I don't remember what it closed at today, around 4,700, I think somewhere around there in that range.

But if you do the math, the growth, the targets I'm seeing amounts of about somewhere around 8% growth in S&P 500, which is at the low end of historical averages. I think a lot of these predictions are basically saying, we expect the historical average for next year, which is really a nothing prediction when you think about it.

My question here, guys: First, do you have a prediction for 2022 whether be the market or the economic performance? If you want to throw that out, feel free. What do you think about these predictions just as a general matter? Rachel, let's start with you.

Rachel Warren: Yeah. I guess I feel like the Wall Street analysts, they have to put these predictions out there, but I think we know that no one can really predict what's going to happen in the future. No one knows for sure what's going to happen with the stock market. I think these are encouraging numbers for sure. I saw on Yahoo! Finance an article about Goldman Sachs released their 2022 predictions on Tuesday.

The chief U.S. equity strategist for Goldman Sachs, David Kostin, said the equity bull market will continue. He said corporate tax rates will probably remain unchanged in 2022, S&P 500 earnings will grow by about 8%. Also, households own half of the $28 trillion in U.S. cash assets, Kostin said, which is an increase of $3 trillion since before the pandemic. "We expect households will shift some of this capital into equities over time."

I try to take these predictions with a grain of salt. I mean, obviously anything could happen. No one expected what happened in 2020 to happen, and they don't foresee that happening against soon. I kind of hesitate to make predictions.

I think that what we've been seeing with the market over the past month, a lot of volatility but still a lot of really strong market days, I hope that will continue. I think you look back over the life span of the market, and historically you have a correction or crash happen on average every two years. But that, of course, is not always the case.

For me, I look at it and I'm not going to be changing anything about the way I'm investing. I'm not going to be really changing the types of companies that I'm buying. I'm optimistic going into the new year. I think consumers are spending more than ever before.

I think also translating to further investments in the stock market. Some of these big companies have shown that even with the supply chain issues and labor shortages, these companies that make up a huge part of the overall market, they're still doing really well and we've had a really great earnings season.

I'm optimistic about the new year. I think there's always a possibility of a correction happening, but I think there's a lot of good reasons to be excited for 2022. I think as we have more and more vaccine distribution and hopefully a die-down of cases around the world, that can also translate to some great recovery in terms of global economies.

Toby Bordelon: What about you, Nick? 

Nicholas Rossolillo: Were you kicking it over to me, Toby? [laughs]

Toby Bordelon: Yeah. What do you think? Let's give some thoughts here.

Nicholas Rossolillo: I agree with everything Rachel just said. I'll make a bombastic prediction though, and then everyone can use me as a punching bag this time next year. But just don't act on any of this prediction.

Rachel Warren: Go for it! 

Nicholas Rossolillo: Because this is not my prediction so that you can go make investment decisions. I think we'll finish out this year strong. I think we'll get a correction on the first quarter of 2022.

But then I think we'll finally see a return growth-stock outperformance next year. This is like the first year, growth stocks, especially hypergrowth stocks. They've been obliterated multiple times this year, starting right back in March. And a lot of stocks in the Fool universe I know have been wiped out and then made come back, wiped out again. I think getting the 2020 comps out of the picture will help. We'll start to see financials compared against a normal year.

Not where everybody suddenly is all-digital because of lockdowns, but we're getting back to more just normal tech growth. I think we'll see a return of outperformance of those growth stocks in 2022 after we get a correction in the first quarter. I didn't think we'd get one this year. I said that early on. I thought it was too soon after the lockdown started and the pandemic started. But I think we could see one early in next year.

Toby Bordelon: Yeah. I think, look, in terms of these predictions, I like what I saw because I think going with historical market averages is good as anything, and actually probably better than most approaches. Why not? Even if you remember though when you look at the historical average, is just that, it's a historical average.

We don't really get that ever. You can get something different. But it's a fine-enough guess, I think. It's important to note that the market was phenomenal this year. The market has done really well. It's done really well in the recent past. Let's assume we get at the high end of our historical average rate, we get 9% or 10% growth, in the S&P 500.

I think that it might be actually disappointing to a lot of people. Especially to newer investors who may have started to believe that 20% annual returns are normal, and just a standard thing. That's what we're always going to get. I don't think that's the case. Then also, by the way, there's going to be some down years.

At some point, we're going to lose money in S&P and all the indexes over the course of the year, and I wonder what happens when that reality sets in. I am generally concerned about that. That we have a lot of market participants who have not experienced that.

Then what I don't want to see happen, I don't want to see people, especially new investors, just swear the whole thing off and like, "You can't make money in the stocks and it's rigged," or anything like that.

Because the down years happen. I hope we're doing a decent job of educating people about that. Maybe we're not, maybe we need to do a better job, but I worry about that. I worry when the inevitable down year or even just not-as-good-as-we-hoped year happens. How do people react to that? I think we'll have to see.