Date: January 6, 2022

2022 Fearless Forecast – Patience & Quality

Each and every year, I spend some time in Q4 collecting my thoughts about how I see the next 12 months unfolding in the financial markets, economy, etc. Given how much media I did in Q4, most of my forecast is already in the public domain. I am happy to say that this is among the earliest I have actually put it all together in one place. Yeah me!

While I do really enjoy looking into my super secret crystal ball as I do throughout the year, I also know that it’s a fairly futile exercise to forecast 12 months out. First, we do not manage client portfolios according to my opinion in any time frame. And second, based on the evidence at hand, I am certainly not arrogant enough or dumb enough to dig my heels in on any forecast. And as we saw with the pandemic, sometimes, life throws us curveballs and we have to adjust on the fly. Interestingly, my 2020 Fearless Forecast turned out to be one of my most accurate. Go figure.

I will say this, though. Whether by a lot of luck or by a little skill, I haven’t seen anyone achieve the hit rate that I have with annual forecasts. I don’t equivocate. I don’t use the ole, “on the one hand…”. And I never revise history nor argue that the market was wrong. I will put my Fearless Forecasts against anyone on Wall Street and beyond. I have meticulous annual forecast records going back 30 years and it’s embarrassing how strategists almost always choose some single digit return number on either side of the long-term average return as a security blanket.

I don’t mind putting myself out there with the possibility of falling flat on my face nor do I ever run from a poor call or forecast. My Twitter tweets are full of mea culpas. I have made a career’s worth of mistakes over the past 32 years and I am sure there are more to come. It’s all part of the forecasting game. Nevertheless, it’s a fun issue to write and I always look forward to grading last year’s forecast as well as hearing from readers along the way.

So, without further torture, here are my forecasts for 2022.

U.S Equities

After three straight strong years, the U.S. stock market frustrates both bull and bear alike. The operative word for 2022 will be patience. I do not see a double digit up or down year, or even an upper single digit down year. Buying the dip becomes selling rallies and then buying the dip. 2022 should look like 2018, 2015, 2011, 2005, 2004 and 1994. All of those years saw rolling declines, some worse than others. I envision a 5%+ pullback in Q1 and then a 10%+ correction during the second half of the year. In other words, the volatility genie is out of the bottle and she’s not going back in.

2022 is also a mid-term election year which, historically, used to be the worst year of a president’s four-year term with a fairly predictable Q4 bottom. Trump did see a 20% decline at the end of 2018, but 2014 was quiet. 2010 saw the first Flash Crash which led to 13% down. 2006 only saw a quick, routine spring pullback. 2002 and 1998 both saw 20% declines. 1994 saw a rolling 10% correction. 1990 had a 20% plunge.

2022 needs too many things to go well to preserve a fourth straight strong year. The odds are heavily weighted against. Without the Fed at the market’s back it will not be easy sailing. Momentum has been extremely strong and that typically does not fade quickly, however, there were plenty of chinks in the armor in Q4 that should spill over to Q1 2022.

Within equities, there should be plenty of opportunities to make money. It will not be a risk off year like 2008 or 2002. Besides patience, another theme for 2022 will be quality. Generally speaking, I favor lower beta, higher quality indices, sectors and individual names, but the year will not be in a straight line. Both Europe and emerging markets keep pace with or outperform the S&P 500 with lower risk than normal.

Overall, the Dow Industrials and the S&P 500 are the indices I favor although I plan to opportunistically traffic in growth and value along with the equal weighted ETF. Value and equal weighted should begin the year as the winners and through the first 4-6 months.

On the sector front, I have high conviction that mega technology will underperform, at least the last three quarters of the year. With more than $2 trillion still in excess savings, I like consumer discretionary to go along with energy, consumer staples and biotech which has been beaten mercilessly. Along the way, I will likely add utilities to the hit parade as well.

Rounding out the equity section, I want to offer some high risk/high reward, somewhat crazy and contrarian ideas. In the U.S. Cathie Wood’s ARKK ETF finds its footing around $70 which sets up a 50% bounce for traders. China is one of the big winners of the year, whether you own bigger names like FXI and MCHI or PGJ, KBA and KWEB. The Chinese economy is ready to bottom during the first half of 2022 and sees increasingly stronger growth during the second half.

Fixed Income

Keeping with my theme of patience and quality, bond investors do a whole lot better in 2022 than 2021. Look for the bond market to find its low for the year in the first four months of the year with the 10-year note peaking around 2% or less. The last 8 months of the year should be rewarding for those owning higher quality bonds. This is a very contrarian call. I also do not see 2022 as being a good year for junk bonds. I think investors should be happy with just clipping coupons.

Oil & Gold

Overall, the commodity space will be challenged in 2022. Having turned positive in August 2020, I am now about selling the rallies. Oil should be rangebound between $60 and $95. Gold has frustrated me for several years, however, the yellow metal looks like it could see all-time highs above $2100 on its way to $3000 and above in the coming years.


Folks should enjoy the strong growth to begin the year because it looks to be peaking and fading as the year matures. While I absolutely do not see recession, the U.S. economy will slowly fade with growth coming in below 4% and possibly as low as 3%. The good news is that supply chain issues will peak during the first half of the year and by New Year’s Eve, they will be completely reduced to a small annoyance. Auto inventories balloon by summer. Chips become plentiful.

One of my highest conviction themes since I first discussed it on Yahoo Finance back in October has been than inflation would peak in the window of Nov through March. I remain firm on that thesis. 2022 will see steadily decelerating inflation into 2023. While I do not think we will see sub 2% anytime soon, the new floor should be manageable in the 3-4% range. It will take some time to get there.


With Jay Powell re-nominated for another term, he will pivot to the hawkish camp where he would have moved in the first place without having to worry about the progressives not supporting him. Powell & Company will make up for lost ground as they should have tapered in the summer of 2020 at a more measured pace. With this last round of QE ending shortly, the FOMC will focus on a fresh rate hike cycle which could end up being among the shortest tightening programs ever. I see two or three rate hikes at most in 2022.

My big issue is that the Fed should have tapered long ago and now they are playing catch up, precisely when inflation, GDP and earnings growth are peaking. Do not be surprised if talk turns to becoming more dovish during the second half of 2022.

Bitcoin & Cryptocurrencies

I have been trying to model Bitcoin for many quarters and my efforts have been largely unsuccessful. I am hoping that with exchanged traded products available, volatility will begin to dampen. In 2022, Bitcoin should visit 30,000. A quick and sharp move below that level should certainly excite me to become very involved.

I can’t move on from here without throwing some props to one of my golf buddies who has the Shiba Inu (a fledgling crypto) logo plastered all over his golf balls. Before laughing like I did, he attributes his first hole-in-one ever to the good mojo from Shiba.


2021 was really a quiet year. Remove the pandemic and very little happened. I know. I know. I am qualifying something and doing the “but, but, but”. Now, perhaps the pandemic was the reason why nothing really happened. In any case, there is a good likelihood that the COVID-19 pandemic becomes an endemic disease.

2022 is a mid-term election year and given the 2021 results of elections in VA and NJ along with current polling data, the House will flip to the GOP and a decent chance that the Senate follows as well. As such any major legislation by the Democrats will need to pass in the first few months of the year. That seems incredibly unlikely.

I do find it beyond amazing that regardless of which party is in power, the carried interest “loophole” for hedge funds, private equity funds and real estate is never, ever addressed. It’s a great campaign promise that is never fulfilled. As they say, if you want answers, follow the money. Cursory looks at campaign dollars to George Bush II, Barack Obama and Joe Biden find a plethora of Wall Street types and their super PACs.

And so, this concludes my 2022 Fearless Forecast. Some things will be eerily spot on; others will be embarrassingly wrong. I never mind being part of the giraffe club and sticking my neck out. You cannot hit the baseball without swinging the bat. Thanks for reading…

P.S. I am not making any forecasts about my Yankees, Cowboys or UCONN Huskies. They’re usually wrong anyway!


Paul Schatz, President, Heritage Capital