DJ30: Roping the Bull

We’re closing in on the end of 2021—another year in the bull market that never seems to end. Once again, the question of whether the Dow will crack is uppermost in the minds of retail investors. Are prices finally going to reach levels that can’t be justified by fundamentals, valuations or even outright irrational exuberance?

There are many reasons to be optimistic: the global economic recovery is moderating but still on track, earnings are catching up to share prices and profitability is forecast to top pre-pandemic levels—all of which suggests it’s too early to abandon stocks. Bloomberg Intelligence’s fair-value model implies a return of about 8% from equities next year.

The major doubt looming over stock markets, however, is inflation. Bloomberg’s global inflation index is at its second-highest point in the past two decades, and the U.S. has the worst inflation (relative to its history) of any broad region in the world.

While the Dow has generally done well in inflationary environments, inflation has breached the 90^th percentile, and when that happens returns have historically tailed off dramatically (2.4% versus the average annualized 8.9%). U.S. stocks are already at the bottom of the global scorecard in the final quarter of 2021. While the flood of retail investor confidence shows no immediate sign of abating, many analysts are becoming more cautious.

Broadly, analysts are more optimistic for other developed and emerging-market equities than they are for the Dow. Slowing growth rates may threaten earnings, the U.S. market remains expensive compared with global peers, and persistent inflation raises the prospect of interest-rate increases coming faster and earlier than expected.

“The reality of margin pressure and the fear of rising rates to combat inflation are likely to keep markets on edge moving into 2022,” said Marc Despallieres, Chief Strategy Officer at multi-asset broker Vantage. “Similar fears have wilted the bull market many times over the course of this extended run but so far it hasn’t been broken, not even by a global pandemic.”

With a keen understanding of the uncertainty that investors have to navigate in the new year, Vantage has made significant upgrades to its technology. This includes improvements to its app, such as an enhanced interface, access to daily market analysis and localised payment solutions for the benefit of its users, particularly in emerging markets, according to Despallieres. By simplifying and enhancing the trading experience, Vantage enables investors to focus on the challenges and opportunities. Nowhere will that be more important than with oil and gold.

The Vantage Outlook: Preparing for 2022