After a sparkling year, investors urged to moderate their hopes for 2022 | Invest

TToo much of a good thing can make anyone – as many know after a week of leftover turkey. The same is true for the economy and the markets, if one relies on analysts’ forecasts for the coming year.

Just sitting around doing nothing (or investing passively) is an admirable strategy in most years. In 2021, it was masterful. London’s benchmark stock index, the FTSE 100, ended December 14.3% higher than last January, and in the US, buying stocks was even more rewarding: the S&P 500 rose by more than a quarter in value.

But even though money was seemingly so easy to make last year, investors and economists are wary of 2022.

“Investors have enjoyed exceptional returns over the past 18 months, but these returns are, in large part, borrowed from the future,” said Joseph Little, chief global strategist at HSBC Asset Management. He thinks a “payback period” is in order.

Guy Foster, his counterpart at wealth management firm Brewin Dolphin, says 2021’s earnings have grown at “a breakneck pace,” and the best we can hope for is a slight deceleration rather than a painful crisis.

And Emiel van den Heiligenberg of Legal & General Investment Management even mentions the dreaded b-word – ‘bubble’ – if only to emphasize that we’re not there yet, despite some of the market madness of 2021.

Predicting stock index movements is always a mouth game – as the pandemic has pointed out – so some limited kudos must go to those who still place their bets publicly. The brave who have put their reputations on the line to forecast for the coming year range from Morgan Stanley (S&P 500 down 9%) to Wells Fargo (S&P 500 up 11%) – a sign of the investor uncertainty.

Credit Suisse is one of the few banks to have nailed its colors to the mast of the FTSE 100, predicting that London blue chips will gain a paltry 7%. Stockbroker AJ Bell is even more pessimistic, at just 4%.

HSBC and Deutsche Bank analysts predict that the US and European economies will experience growth of between 3.75% and 5% in 2022. Yet Japan’s Nomura warns that US growth could slow significantly in the second half of the year.

Among those lining up to spoil the party is Chinese President Xi Jinping, who has previously denied music to his country’s tech moguls. Sino experts suggest Beijing remove the punch bowl with stricter credits and regulations.

Then there’s inflation, the dog that can finally bark after 12 years of ostentatious silence. This time, things could really be different: UK consumer prices have risen 5.1% over the past year and US prices 6.8%.

The Bank of England’s Andrew Bailey has already made his best impression of Mervyn King, raising interest rates as a downturn seemed imminent (although it may only be mild, linked to Omicron). Nonetheless, the rate hike is a signal that central banks are really feeling the constant dips in inflation – even though some of the price increases are caused by pandemic disruption rather than widespread wage increases. Stopping the flow of money to the economy without hurting the recovery could turn into a fierce balancing act.

“It’s devilishly difficult to achieve a soft landing,” says David Folkerts-Landau of Deutsche. “But it can and has been done.” Buckle up.

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