By | January 3, 2022

Market predictions are foolish. All of us realized this a very long time in the past. However that doesn’t imply they’re utterly nugatory. Although forecasts are nearly at all times fallacious, they are often entertaining and academic. That’s all I’m making an attempt to do with this submit. Entertain and educate. Nothing on this listing is funding recommendation. I’m not doing something with my portfolio primarily based on these predictions, and neither do you have to.

Alright, sufficient throat clearing. Let’s have some enjoyable.

Giant worth will outperform massive progress by 20%. One of many tales that went underneath the radar final yr was the return of small worth. Whereas small progress returned 2.5% in 2021, small worth gained 28%. This identical dynamic didn’t happen in massive shares.

Because the economic system reopened over the primary three months of final yr, massive worth returned 11% whereas massive progress fell 1%. It appeared just like the tide was altering, however the endzone dance was untimely. Development got here roaring again, returning 29% via the remainder of the yr, whereas massive worth gained simply 12% over the identical time. Over the whole yr, massive progress gained 27.5% in comparison with a 25% advance for big worth.

Small worth/small progress seems good, whereas massive worth/massive progress stays depressed.

Giant progress has outperformed massive worth for every of the final 5 years by a mean of 14%. That reverses onerous in 2022. For this to occur, massive tech has to take a breather. If I get that fallacious, I get this name fallacious.

Not solely does the composition of worth indices look completely different than progress, however so does the focus. The highest 10 progress shares signify ~49% of the index in contrast with simply 18% for worth. 

Because the economic system reopens and the fed normalizes rates of interest, I might anticipate essentially the most economically delicate names to outperform.

Energetic managers will beat the benchmark. For this to occur, the earlier prediction should come true. Inventory pickers won’t exceed the benchmark as long as large tech beats the benchmark.

Apple, Amazon, Fb, Google, Microsoft, Netflix, Nvidia, and Tesla added practically $3 trillion in market cap in 2021. Something approaching a repeat efficiency would shock me.

It’s onerous to beat the index when the most important names do that.

It’s been some time since large-cap managers have had a lot success as an entire.

2021 was a catastrophe for large-cap managers. Solely 21% of large-blend managers outperformed the S&P 500. 2022 will certainly be the yr of the inventory picker.

China tech dip consumers will likely be rewarded. KWEB will achieve > 30% in 2021. I don’t know that I’ve ever seen a chart like this earlier than: Chinese language web firms are down 62% from their February excessive, and but cash has nonetheless come into the fund, KWEB.

KWEB added $7 billion in 2021, making it a top-25 asset-gathering ETF in 2021. (H/T Balchunas)

5 of the biggest Chinese language tech shares fell $1 trillion from their peak in early February. Web censorship in China nuked their shares in 2021.

Dip consumers have been punished to this point however will likely be rewarded in 2022.

Bitcoin will see $30,000 and $100,000. Bitcoin isn’t fairly as unstable at $1 trillion because it was at $10 billion, however it nonetheless swings round like loopy. $30,000 can be a 37% decline from present ranges and a peak-to-trough decline of 57%, actually consistent with historic drawdowns.

A number of extra crypto associated predictions

  • ETH won’t flip Bitcoin
  • The SEC won’t approve a spot Bitcoin ETF
  • Tesla is the one S&P 500 firm with Bitcoin on its steadiness sheet. That can change in 2022.

META will add $1 billion in property in 2022. Discuss being in the appropriate place on the proper time. If you happen to look fastidiously on the chart under, you’ll be able to see the place Fb modified its title to Meta.

There are 40 thematic ETFs with $1 billion. META will go from an outsider to the highest 20 in 2022.

ARKK will outperform the Nasdaq-100 by 20%. It’s onerous to imagine, however ARKK underperformed QQQ by 50% in 2021.

The median inventory within the fund is down 52% from its 52-week excessive, whereas the fund itself is in a 39% drawdown. The S&P 500 and Nasdaq 100 for comparability functions are at all-time highs.

The median PS ratio of the shares within the fund peaked at ~35 in February and is 12 right now. I don’t know if these names are deep worth, however they’re actually cheaper than they have been a yr in the past.

Tesla doesn’t converge with fundamentals. Probably the most controversial firm inventory on the planet crushed it final yr. It gained 50% in 2021, or $383 billion. That’s roughly the scale of PG, or Proctor, or Proctor & Gamble for those who’re not into the entire brevity factor.

This wasn’t simply the results of ever-expanding multiples. The enterprise flat out delivered, actually. They did 936,172 automobiles in 2021, an 86% improve over 2020. The truth that they may do that throughout a worldwide chip scarcity is tremendous spectacular.

However nonetheless manner you slice it, Tesla the inventory seems stretched.

Conventional elementary metrics haven’t deterred Tesla shareholders over the previous couple of years* and I don’t see that reversing in 2022. The inventory received’t repeat 2021, however it received’t crash both.

*Tesla is up 2,370% over the past 5 years. It has crashed 50% twice throughout that point.

Buybacks will set a file. This feels much less like a prediction and extra like an inevitability. After crashing in 2020, buybacks got here roaring again in 2021. There’s no cause to suppose this development received’t proceed into 2022.

The most important purchaser backer, Apple, has shrunk its float by 37% because it began this program in 2013. Over this time, Apple has spent $455 billion retiring shares.

Lest you suppose buybacks are manipulating shares larger, the next chart exhibits that the buyback index truly has underperformed the plain-vanilla model over the past three years.

That final chart won’t change your thoughts for those who’re within the buybacks are manipulation camp. This subsequent one ought to. Buybacks as a % of S&P 500 market cap have been 0.64% in the newest quarter.

The fed will decrease charges. They’ve telegraphed three rates of interest for 2022. They’ll do two, after which the market will crumble. As a substitute of a third hike, they’ll reverse course and decrease charges to cease the market from falling additional.

Out of all my predictions, that is the one which I actually hope doesn’t come true. If we will’t normalize charges now, I’m unsure once we ever will.

The S&P 500 may have its worst yr since 2008. This isn’t as daring because it sounds. The worst yr for the index since 2008 was -6%. I predict this yr it can fall greater than 15%. The mix of excessive multiples, excessive inflation, provide chain points, and the fed elevating rates of interest will show to be an excessive amount of for buyers to deal with.

Over the past three years, the S&P 500 has gained 31%, 18%, and 29%. If you happen to can’t stand to see the fairness portion of your portfolio give again somewhat, finally, you’ll be in for a impolite awakening. If we see a pullback, strive to consider it because the supply of future returns. If you happen to consider declines as a payment as a substitute of a positive, you’ll set your self up for a lifetime of profitable investing.

Thanks for studying. We’ll verify again in 12 months 🙂


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