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The Final Four is over and Kansas is the champ, which means it is time for LPL Research to discuss which four factors matter the most for stocks in 2022. This week, Jeff Buchbinder and Ryan Detrick discuss the four most important factors for stocks in 2022, along with another look at inverted yield curves and our latest take on the Federal Reserve (Fed) policy.

The Real Final Four

The consumer makes up about 70% of the economy, so clearly a strong consumer matters for overall economic growth. Jeff notes we should see more spending on services over the coming quarters as things open back up. Ryan adds consumers have trillions of dollars in savings, so for the near-term at least, they can handle higher prices. Earnings are another important factor and overall corporate America continues to impress, which should help stocks. Soaring interest rates have impacted stocks. Jeff notes higher rates leads to lower multiples, which could be a headwind for stocks. Lastly, inflation matters a lot and is the winner in our final four. We expect inflation to peak soon, but it could stay stubbornly high. The direction and magnitude of inflation could be the big tell for how stocks will do.

More Yield Curve Talk

Ryan and Jeff discussed on the previous podcast, but with the two-year/10-year yield curve officially inverting last week, they take another look. Ryan notes that past inversions weren’t always a bad thing, with stocks up nearly 30% the next 17 months during the previous four inversions. He also points out that recessions take about 19 months to occur after the first inversion. Jeff notes that the three-month/10-year yield curve is still quite steep, and this is the one that the Fed thinks matters more. Lastly, Ryan adds that real yield curves (which are adjusted for inflation) are steep and not near inversion. We saw these invert (along with nominal yields) in 2006 and 2019 before those recessions.

Jobs and the Fed

March’s nonfarm payroll was quite strong, but even better was the 95,000 jobs added to previous months. Jeff points out the employment backdrop remains quite strong, something that is another clue a recession isn’t near. Ryan adds that wage growth was tame two months in a row, a sign that inflation could indeed be nearing a peak. Lastly, the Fed minutes will be released later this week. Overall, we don’t expect it to be much of a curveball, but what they say about the balance sheet run off could be interesting.

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

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