2021 was Fantastic! What about 2022?

December 2021 marked the finish of another fantastic year for North American equity markets, making it the third consecutive year of double-digit equity returns for our clients.  December managed to rally with a clutch finish after what can be described as a bumpy ride in the second half of the year when compared to the explosive gravity defying first half. Even amidst the Omicron variant, which really took the stage at the beginning of December and quickly escalated into a full-blown emergency around the world. Yet, while the NHL paused its schedule and the IIHF World Junior Hockey Tournament held in Alberta was cancelled, investors continued to prop up equity.
 
We are grateful for the returns and the accolades received from clients, and we must admit, it is very affirming to see the markets finish the year within mere points of our adjusted annual forecast made in late August. Not everyone accepted our market call. We understand full well that there is a lot of doom and gloom in the world right now, and the media only appears to focus on headlines that propagate fear; which is why we do what we do. Day-in and day-out we sift through the noise to give you a clear direction with solid investment advice and 2021 was no exception.  

To begin, the outlook for 2022 remains positive, as we have eluded to over the past year. Modeling indicates that both the S&P 500 and the S&P/TSX will attain a price target of 5,300 and 24,000 respectively. We changed the annual forecast twice in 2021, something we don’t do very often, and it’s quite possible we may have to adjust these figures in 2022. These price targets represent a 10% and 9% return respectively, and although this is lower than the last couple of years, we would be ecstatic with these results at the end of the year.  This speaks to our conviction with respect to remaining bullish in a market that a lot of people seem to be attempting to call for another major correction; being overly skewed to the short-term. From the original forecast in 2021, we continue to see consistency in earnings and the deliverability of cashflow. We see strong earnings coming from areas like the Financials, Consumer Discretionary, parts of Materials, parts of Industrials, and still consistency in the Tech space.
 
We believe it will be important to own less names. The marketplace is too focused on the index and the benchmark. There could very well be some tracking error in 2022, so investors will do better to own less names; own high quality, growth at a reasonable price, which is where we’ve been concentrated over the last few years. From a very high level we think the second half of 2022 will be stronger than the first half and inflation has the potential to be put in check as supply lines rebalance. We see a resurgence of making things in North America. The disruption in supply chains has been a punch in the face and we’re not going to let that happen again. It’s quite possible that Industrials could be the dark horse as everything unfolds, we shall see. An infrastructure bill in the U.S. will be a welcomed catalyst to move the needle, as there hasn’t been an infrastructure bill in the United States since the Dwight D. Eisenhower era, which was the Interstate Highway Act. Overall, Canada and the United States remains “the place to be” in our investment thesis and look to balance our holdings with growth and value in our Large Cap equity focus.

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