First, let me say that I do not have a crystal ball. I can't predict the future with certainty, and much of what has happened so far in 2022 has indeed come as a surprise.
Having said that, it can be useful to make some educated predictions. I typically do a year-end article with my bold predictions, but it seems fitting to do a midyear version, given how much the economy and stock market have changed. So without further delay, here are three bold predictions for the stock market for the rest of 2022, and what I'm doing to set myself up for future success, regardless of whether I'm right or wrong.
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1. The Fed will get inflation under control -- but at a cost
In my latest year-end bold predictions article, I said that inflation would be more difficult to control than the Fed thought at the time, and unfortunately, this has proven correct. At that time, the median inflation rate in 2022 projected by the Fed was just 2.2%. Now that policymakers seem to have more of an understanding of the situation, I'm confident that the Fed will be able to get inflation under control, but not before a series of rate hikes that push the Federal Funds Rate to 4% or higher.
2. Growth stocks will remain "on sale" for some time
I've spent most of my investment dollars in this correction accumulating shares of the high-growth companies I thought I had missed out on in 2020 and 2021. To name a few, I've added Shopify to my portfolio recently and have added to MercadoLibre and Block.
Having said that, a rising-rate environment and fears of a recession are simply not conducive to any of these stocks retaking their all-time highs. All of these could certainly reach new highs eventually, but I don't see it happening until inflation cools off, economic growth is healthy, and rates start to fall.
3. We'll have a recession, but a mild one
This may technically happen in 2023, but the seeds are certainly being planted now. To be clear, we are not in a recession yet, and the term is defined as two consecutive quarters of shrinking GDP, but housing starts have been disappointing, layoffs are starting to dominate headlines, and consumer confidence is starting to decline.
With the Fed poised to aggressively raise rates for the rest of the year, a recession is looking unavoidable. However, I don't see a deep recession, just a mild and somewhat short-lived one.
How I'm investing right now
To be perfectly clear, these are my predictions, and I'm fairly certain that they won't all be correct. But there are a few things I feel 99% certain of:
- This bear market won't last forever.
- The S&P 500 will be significantly higher in a decade or two than it is today.
- When the stock market has declined by 25%, it has historically been a great time to buy shares of excellent businesses.
With those things in mind, I've been focusing on investing in profitable, high-quality businesses that should be able to weather any economic storm, and I'm not slowing down. I've been aggressively contributing to retirement accounts and buying shares of my favorite stocks.
It's entirely possible we haven't seen the bottom yet, but as a long-term investor, I'm okay with that. I'm very confident that no matter what happens for the rest of this year, I'll be glad I decided to keep my eye on the long term and invest through the tough times.
