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The Raymond James Portfolio Strategy team recently published their outlook for 2022 and it is a positive outlook. Double-digit earnings growth should continue to be the primary driver of equity market returns in 2022 supported by what they expect to be above trend GDP growth and moderating inflation.

Credit Suisse, one of our world-wide research partners also reported their forecast for corporate earnings this week and they expect the upcoming 4Q earnings to jump 20% followed by an 8.6% rise in 2022. As earnings growth ultimately determines the direction of the market, we recommend that you focus on the direction of the earnings being reported by American companies.


However, the effect of Covid on the earnings of the stocks in the market has been unprecedented over the past two years. After the panic sell-off in March 2020, the market has been bouncing from industry sector to industry sector, attempting to forecast which industry groups would recover first and then discovering that while some industry groups were indeed devastated by the pandemic, several groups experienced a totally unexpected boost of business from the crowds stuck at home or working from home.

Credit Suisse now projects that earnings from the groups that have profited from the supply chain demand in recent months will be higher in the reports we will see over the next few weeks. Their stocks have been rising in anticipation of those reports. They project that the groups that have benefitted most from Covid, the “stay-at-home” stocks and the stimulus beneficiaries (automotive, home improvement and certain healthcare names) will begin to see their earnings level off this year.

A well-diversified portfolio focused on companies that can grow their earnings regardless of these economic currents should continue to provide solid returns regardless of the short-term ups and downs. Many unprofitable growth stocks have outperformed in recent years and that may not continue, but solidly profitable companies should continue to do well.


In spite of having a positive view of financial markets for 2022, there are still issues that could cause some unsettling volatility this year. According to Linda Duessel at Federated, election years tend to produce more volatility than normal, and mid-term election years like we face this year tend to be more volatile, even though equity performance for the year is often positive.

Another source of volatility could be a policy mistake by the Fed. Many economists, though often wrong, believe the Fed should have acted sooner to slow the inflation we have seen in 2021. Now many believe that the Fed will have to raise interest rates significantly. As we look at the annual rotation of Fed Presidents, with four somewhat hawkish presidents rotating on and four somewhat dovish presidents rotating off, there is a possibility that the new guys will try to make up for what they perceive as too little action by their predecessors and shock the market with too much tightening.

We are still of the opinion that the inflation resulting from the price increases in gasoline and other commodities is probably cresting here and will gradually dissipate over 2022. A major factor influencing commodity prices, the health of the Chinese economy, doesn’t look good. As the world’s biggest consumer of oil, gas, steel, copper and just about any commodity you can name, a slowing demand from China could keep a lid on all those material prices. As we mentioned in our October letter, the real estate bubble there seems to be deflating and could cause a significant drop in demand for all of these commodities.

Charles Gave of Gavekal recently pointed out that structural bear markets are nearly always accompanied by accelerating inflation and rising energy costs. Again, we believe the China bear will keep energy prices contained and inflation will level off this year. Also, wage inflation, which seems to be one of the favorite headline stories, was up 4.7% year-over-year in last week’s employment report, hardly a problem for a growing economy.


I loved this headline in Barron’s Magazine this week. I thought it was interesting that the cover story in that same issue was titled “It’s Time to Invest in Commodities”. Helene Meisler, one of my favorite technical analysts, pointed out this bold call in her column morning. She suggested that now that the energy stocks have been touted on the cover of Barron’s, the energy sector (oil and gas stocks) which had quite a run up in 2021, now are probably due for a pullback.

It is amusing that cover stories, particularly in Barron’s or one of the other major business magazines, seem to mark the turning points in the opposite direction that the publications would suggest. It happens more than you would expect.

In case you still are unnerved by the pundits that covet our attention in the media, cut the above quote out and tape it to your bathroom mirror. “Story stocks” with a great story but no earnings many times tempt us to occasionally set aside our discipline and buy the story…bad idea! Many of the “story stocks” had a good year in 2021 but are now under pressure and have not turned out so well for the speculative investors.


Our advice: Focus on the direction of earnings and stick with the stocks of companies most likely to continue to grow those earnings. Take the rest of the “news” with a grain of salt! That said, please give us a call if you need a confidence boost. We’ll do our best to explain what we believe is going on. Thanks for your confidence in us!


Dave Crouch Kim Blackburn Kay O’Connell

Registered Principal Branch Operations Manager Financial Advisor

Financial Advisor


Buffett Quote:

Predicting rain doesn't count. Building arks does

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.


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