Stock Market Forecast for Next 6 Months
We’re looking forward to the summer of 2022 to figure out which stocks will be thriving. This current downturn will keep the markets subdued for the next 3 months. By June, the economic turnaround should be apparent.
This summer the travel, entertainment and leisure sector should pick up considerably. The March break gives us a look at consumer intent. That consumer discretionary spending is vital to the picture given shortages and inflation will eat into the recovery. GDP forecasts are being revised downward but there is still growth predicted.
But for investors, this upward rally over the next 6 months should reveal investible stocks across all sectors. Certainly oil stocks are going to fare well via higher prices and higher volume. Tech stocks on the NASDAQ are more risky yet you’re likely to find some of them doing well. Google and Apple should fare well, given they’re the only Faang stocks that were relatively flat in price the last 6 months.
January’s massive job growth is a great sign for the rest of 2022. The receding pandemic brings more confidence even with a few outbreaks.
What is the story of summer 2022? Rising economy but with strong inflation causing great pain for most Americans. Some are talking recession, and some even a downturn and stock market crash. We can’t discount that possibility given the political volatility and that the Biden admin may not be able to do anything about what’s happening now. A lot of things are set in motion, and that momentum could carry some bad outcomes.
Key Factors affecting stocks in the summer of 2022:
- high rising inflation (8%) and slower growth (<2%) is stagflation and ruins profitability
- rising consumer spending (pandemic relief) will drive performance
- consumers will dip into savings to buy much desired products/services
- rising US production capacity will ease some supply issues
- supply shortages could affect tech businesses who depend on international inputs
- rising interest rates will eat into profits
- scorned, shunned Russia will present problems
- China conflicts will rise and result in higher prices for imports from China
- Russian cyber attacks will create expensive disruptions
- vacation spending in June, July and August will provide a nice boost
Best Stocks to Buy in 2022
Some of the very best performing stocks in 2022 may be some recovering economy small caps. Check out the Russell stocks. Small cap earnings have been crushed by Covid shutdowns, but with that out of the way, manufacturing and service sector resumption, and growing spending on travel, events, dining out, and entertainment, small caps have huge upside.
Pandemic Recovery is the Key Driver
American consumers have a lot of money to spend and a strong desire for a return to normal. Small increases in interest rates won’t derail the summer 2022 recovery. Some economists predict a slow return until mid summer and then a booming 2nd half of 2022.
Up until recently the summer 2022 economic recovery looked like a sure bet. And Covid is receding, the economy will reawaken, and profits will grow as global markets open up in the next 6 months (summer). Some forecast the first half will be a disaster with no recovery from the last 6 month decline. The first 3 months of 2022 won’t be too hot. They predict by July we’ll see momentum and growth.
Still the strong volatility of the last 6 months shows investors feel a lot of uncertainty. The roller coaster ride on Monday was astonishing. And now with the war in Europe and communist pressures on Taiwan, along with Fed spending reduction and interest rate rises, some investment advisors are telling people to get out of the stock markets.
What’s most compelling about the next 6 months? It’s likely that interest rates won’t rise as expected and that a spending package might be in the works to help out. Neither US political party really wants a recession because it could spell the end of their election hopes. So both parties may have to go back on their stated intent.
The housing market forecast too is dampened by product, labor, land and finishing products shortages. Even appliances will be in short supply. This will slow housing completions, even though housing permits are up strongly. It may be a lot of wishful thinking from investors and home builders.
Steel, copper, lithium, aluminum, palladium, nickel, lumber and computer chips might be in short supply. That could push you over to the Dow Jones. And if interest rates do rise and Fed spending tapers strongly, the NASDAQ could get hit hard.
Trading Economics US GDP Forecast
Trading economics offers their forecast for various GDP factors. Their 6 month outlook is somewhat subdued with more optimism for 3rd and 4th quarter growth. If materials and supply chain issues are prevalent, then it might be some time before US companies can get rolling in production. It could take half a year for the economy to adjust to higher borrowing costs, higher prices, and lower Fed spending.
Higher interest rates, higher employment and wages, inflation, supply chain woes, and more will cause earnings to moderate. However, some companies are benefiting from this year’s turmoil.
When the economy begins to accelerate in spring (post Omicron) some stocks will do well. Oil stocks hold a lot of promise. Some investors, politically motivated won’t invest in them right now, but as oil prices and nat gas prices surge into 2022, that will change. A lot of institutional money will be looking for more profitable companies and how could they ignore lush oil profits?
Longforecast offers it’s month to month projections for 6 months and beyond. They see sluggish growth for the next half year, and starting to move upward next November.
The End of Easy Money, Fed Spending and Speculation?
Much of the 2021 outrageous growth was fueled by speculation and Fed spending. Yet Fed stimulus might be hard to come buy in the first half. Economists suggest the first half of this year won’t be great. If investors truly start to believe that, we could see a big correction. We’re down 13% on the NASDAQ, so the next 3 months might be awful for 401ks and equity holdings. Bond prices are rising though so someone might be happy.
Stocks would have to fall a further 30 to 40% to wipe out the gains of the past year. If they do crater, it will create quite a buying opportunity for smart investors. The charts clearly show we’re headed down, so the crash and correction hype has some credence.
It’s quite a shock and more is coming. Bitcoin and other NASDAQ stocks could take a beating. Some stimulus might be needed. Inflation will slow consumer spending and Americans won’t be getting the vacation they’ve been dreaming of. It’s too expensive with airfare, hotels, taxes, and food much too pricey.
Yes, Omicron was the surprise deflator that no one saw coming, just like Delta. The Vaccines and treatment drugs tell us we should have this under control when the sunshine and heat return in May. If Mr. Biden gives up on the crazy stuff, then the Republicans might agree to some sizable spending in 2022. That would send the economy rolling again. It all depends on what Biden demands.
The carbon embargo still has to be dealt with and he’s likely not going to go back to allowing all the oil drilling in the Republican states such as Montana, Texas, Colorado, Alaska, etc. Experts believe the price of oil could go well beyond $100 a barrel. Even during these rough times in the equities markets, the price have oil has stayed strong.
The price of gasoline could hit $4 a gallon, and other fuels such as Diesel and jet fuel will climb fast too over the next 6 months. Summer demand will really sock it to the Democrats. Mexico is planning to stop export of all heavy crude, the same kind Obama/Biden blocked from Canada. Soon the US will have to import the heavy crude via the Keystone XL pipeline. Heavy crude is used in endless products and applications and is the industrial material of choice.
Canadian oil company stocks are worth a look. Currently they only receive about $70 a barrel for WCS oil. Soon they could be selling all they can pull of out of the Oil Sands and other reserves at a much higher price. The prices of Canadian oil stocks could climb by summer as their earnings skyrocket. Some buyouts and takeovers are bound to happen. Whoever has reserves and pipeline capacity will do well.
By Spring, the Negativity Will Dissipate
It’s important to note with market volatility, these drops in confidence will swing back to strong optimism. Of course, we’re forecasting while not knowing how the Fed will behave, if the government will negotiate a deal, and if Covid 19 is truly out of the way. We know things linger, and this is why it might take till July to get rolling. 2nd half is what the experts talk about.
The Economy Will Grow
The Conference Board forecasts that US Real GDP growth will be 6.0% (annualized rate) in Q4 2021, up from 2.3% in the 3rd quarter. They forecast a 3.5% growth rate during 2022 and then slower at 2.9% for full year 2023.
|Stats courtesy of BEA||2022||2020*||2021||2022||2023|
|Real Disposable Income||-3||0.5||1||1.5||6.2||2.3||-2.7||2.2|
|Real Consumer Spending||4.7||2.6||2.9||2.4||-3.8||8||3.4||2.6|
|Inventory Change (bln chn ’12$)||50||55||60||65||-42||-68||61||40|
|Total Gov’t Spending||2||2.5||3||3.8||2.5||0.8||2.3||4.2|
|Unemployment Rate (%)||4.2||3.8||3.6||3.5||8.1||5.4||3.1||3.3|
|PCE Inflation (%Y/Y)||5.5||4.7||3.7||3.1||1.2||3.9||3.6||3|
|Core PCE Inflation (%Y/Y)||4.5||4.4||3.7||3.2||1.4||3.3||3.6||3|
Advisors called for an everything rally, including Tom Lee, but some variables ruined that prediction.
Will the rising a price of oil closing in on $100 ruin the recovery in 2022? The current US government have dug their heels in about drying up oil in America and importing it from Saudi Arabia. That will be a big drain on the economy which needs oil for manufacturing and building.
Experts are calling on moderating stock prices and housing prices, yet inflation and recovery plus stimulus spending will make it unlikely. Everything rally means prices are rallying upward too and it will be a tough time to buy a house. The most recent jobs report was excellent, and there are plenty of unemployed workers who will return to work as the pandemic fully recedes.
China’s burst in regulation exposes bad things in their economy. Evergrande, a real estate company is facing bankruptcy and major default, and this makes investors fear a ripple of bad news. China wants to punish Australia and clean up their air for the coming Olympics, by cutting the use of coal, although now they’re demanding Chinese producers produce 100 billion tons of it for China’s use.
“Consumers have plenty of income and wealth ammunition to support consumer spending, while business inventories remain lean and restocking efforts are poised to support business investment and overall GDP growth substantially in the second half of the year,” — Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina – from Reuters report.
In general, Americans are awash in cash with low debt, and wages are rising. Of course, inflation seems to be eating into that growth, but we’ll see if inflation is a persistent threat to corporate profits. Most corporations simply pass through inflation and taxes to customers, and we’re entering a period of intense spending where consumer wants are the priority.
Some of the slowdown in goods spending reflects shortages of motor vehicles and other appliances, whose production has been hampered by tight supplies of semiconductors across the globe — from Reuters report.
Consumer sentiment might be low right now, but that temporary mood will dissipate 6 months from now in the early summer. Americans will spend more on homes, iPhones, big screen TVS, vacations and consumer goods. And US manufacturers and software developers will see more revenue and sales. It will be risk on sentiment in 2022.
The Dow Jones, S&P 500 and NASDAQ have enjoyed steep growth curves year to date, although not like 2020 (growth is usually about 10% after a peak year) and more growth is certain for the next 6 months.
Whether tomorrow, next week, next month and into next year the stock market and housing market are poised to move ahead. Yes, new home construction is down and inflation is up, but the market will produce what consumers crave. Governments will make it harder with their crazy agendas, but what consumers want, they will get.
Smart investors, business owners and home buyers all focus on the 6 month forecast and 5 year outlook as a more reliable guide. In a highly indebted economy based on credit (and big savings too), the Fed and its interest rate intentions are really important. The Fed says it will not raise rates in the next 6 months, so this bodes well for the last half of 2021 and the 2022 forecast.
As a reminder, the Christmas buying season is only about 3 to 4 months away, and forecasts are predicting strong Xmas sales. It’s American savings that are the key to the upcoming sales boom. As Covid is defeated, the opening to retail sales, travel, leisure and hospitality will fund a return to normal, and beyond.
Key 6 Month forecast factors:
- Powell, FOMC and the Fed: pushing short term inflation to support 2% inflation long term
- Fed is intending to taper its spending spree
- Inflation is considered good for growth, but short term inflation even if it hits 5% to 10% won’t cripple the long term growth trend
- GDP: strong first quarter growth at 6.4%, and Atlanta Fed forecasts a 9.3% rate for 2nd quarter
- Housing Market outlook: construction beginning to rise while prices begin to moderate
- 5 year outlook for the housing market positive given savings rate, demographics, and immigration forecasts
- post pandemic recovery pace easing but is still well above 2019 levels
- Wage Growth : employment rate steadied with slight rise in wages during April (s increased by 21 cents to $30.17)
Workers are reluctant to return to work for a number of reasons, but those reasons will diminish in the coming 6 months with vaccinations and fed payment wage subsidy program ending
- Biden’s stimulus package likely to provide $3 Trillion boost to the economy and could be sustained spending for many years.
- Corporate earnings reports positive heading into summer recovery and business reopening
- Consumer spending rose .5% in April
- travel spending surged in May
- shortages in products and materials likely to spur more investment
The ISM’s index of national factory activity increased to a reading of 61.2 last month from 60.7 in April. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 60.9 in May. — Reuters’s report.
The Next 6 months is the hot topic as the Xmas season nears.
Do you believe the economic growth last? What will drive it.
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Over the June to December forecast period, we’re going to see more stock market index records. The Dow, S&P, NASDAQ and Russell are poised to reach their respective records soon. Sure there’s debt based crash talk and volatility test investors convictions. Yet, the momentum is clear and any inflation that occurs might encourage more investment (bond market hates inflation).
Take a good look at the fastest gaining small, mid and large cap stocks with an eye on safety and hedging. Experts believe the market will cool, but they’ve been saying that for years, so you have to take their predictions and projections with a grain of salt. See more on the best tech stocks, 5G stocks, and oil stocks.
Covid 19 still influences the markets. Although the new Covid variants are threatening, the vaccinations are progressing fast in the US, so we’ll see the US economy open faster this summer. By fall, which will be within a historically amazing time for retail and industry, and profits and prices will continue very high. Earnings reports are solid. The key is to look for the best value stocks and maybe pass on Bitcoin (although USD isn’t a good investment).
Best Summer Stocks to Buy?
- Wayfair (NYSE:W) (retail furniture boom)
- McDonald’s (NYSE:MCD) (consumer spending, end of covid)
- Carvana (NYSE:CVNA) (used cars)
- Carnival Cruise Lines (NYSE:CCL) (travel and tourism prices rising fast)
- Vail Resorts (NYSE:MTN) (hotels opening up, recreation coming back)
- Visa (NYSE:V) (consumer spending on credit rising)
- Nvidia (NASDAQ:NVDA) (chips for phones, gameplaying, and cars)
The Market is Complicated but Overpowered by Growth
Few indicators suggest a stock market crash or a housing crash and financial collapse is imminent. The crash factors are complex. Complexity with extreme price growth means the threat will surprise everyone. Credit and the stimulus will take care of the next few years. Inflation will happen, but economists don’t believe it will be damaging to growth or profits through 2022.
Americans are worried about a housing market collapse, but with such low housing supply, it’s hard to see anything dropping home prices. Stimulus will grow construction even in a grossly over-regulated housing market. Home prices are surging out of hand this spring and summer. Bidding wars will abound and many homeowners will finally decide to sell to catch some of the windfall. It won’t be a problem after the next six months.
CBO Report: Positive for 5 Years
“Specifically, real (inflation-adjusted) gross domestic product (GDP) is projected to return to its prepandemic level in mid-2021 and to surpass its potential (that is, its maximum sustainable) level in early 2025. In CBO’s projections, the unemployment rate gradually declines through 2026, and the number of people employed returns to its prepandemic level in 2024.” — CBO Overview of the Economic Outlook: 2021 to 2031.
One expert says the euphoria is gone and it’s hard to get investors excited. Well, that just isn’t true. People are still depressed through the pandemic, and are only re-emerging in the spring of 2021. There will be plenty of crazy euphoria by late summer when Covid 19 infections dwindle.
Many of the bears are looking at issues that might not kill the economy for a few years. The Biden stimulus money will help bridge all problems in the next 6 months. One expert believes the stimulus money will actually reach the capital markets this time, where Trump’s stimulus money did not.
Clouding the 3 month and 6 month outlook however, is the aforementioned housing market where a tsunami of evictions and continuing plague of rent defaults threatens. There is a level of volatility, uncertainty and a departure from old statistical trends, that makes stock market outlooks seem sketchy.
Yet if you’re a stock market investor, potential stock investor, home buyer, or employer, you need to be keying in on the core of economic paths (cyclical stocks). See the full comprehensive stock market forecast.