Most investors are likely happy with the stock market’s overall performance in 2021, as the S&P 500 index posted a 26.9% gain in 2021.
But, with the effects of the coronavirus pandemic lingering, inflation remaining the highest it has been in decades and the market overdue for a 10% correction, where does this leave investors heading into 2022?
While no one can accurately predict market movements over the short term, there are some sectors of the stock market — along with other types of investments — that seem favorably positioned for the new year. Talk to your financial advisor and see whether any of these investments align with your personal investment objectives and risk tolerance.
The sharp selloff in high-flying growth stocks in December 2021 may be a harbinger for what is to come in 2022.
If stock valuation takes on increased importance in 2022, then value stocks may finally come back into play. Over the very long run, value stocks have actually significantly outperformed growth stocks, although that would be hard to believe for investors who have been in the market over the past decade.
While large-cap value outperformed growth by an 11.8% to 10% margin from 1927 through 2020, over the past 10 years, U.S. growth stocks have handed value stocks their lunch, outperforming by a whopping 7.8% annually.
But the tide may be turning toward value over the coming year. In addition to the high-growth December selloff, indicating a rotation among some investors from growth to value, it appears some investors are already ahead of the curve. The Russell 2000 Value Index returned 13.7% in 2021.
Value stocks are typically found in cyclical industries such as banking, industrials and energy. However, value stocks can be found in many industries. They are usually identified by having low price-to-earnings ratios, high dividend yields and low price-to-book ratios.
Momentum seems to be shifting away from growth, toward value, and if nothing else, value stocks should be more defensive if a long-awaited correction hits the stock market in 2022.
Stocks That Were Oversold in December
If you’re more of a trader, December often offers some good opportunities for short-term gains heading into the new year.
Thanks to the benefits of tax-loss selling, portfolio managers and individual investors alike tend to sell stocks that are down for the year. Selling shares at a loss allows investors the chance to offset any taxable gains they’ve already realized for the year.
Portfolio managers get the added benefit of removing “losers” from their year-end reports. When you put all this selling together, stocks that have had a rough year are often driven down even further in December. Once this selling pressure abates in January, many stocks that were punished in December snap back.
When performing this analysis, bear in mind that some stocks go down because they are fundamentally flawed, not just because of the added selling pressure. You’ll still have to do your homework to find companies that may have encountered a rough patch but that still hold promise for the future.
Travel & Leisure Stocks
If you’ve got the ability to handle volatility and are optimistic about America’s future, the travel and leisure stocks might be something to look at for 2022.
This industry got absolutely hammered during 2020 as the coronavirus pandemic raged throughout the world, and it struggled to get back on its feet in 2021. Stocks in this industry can now jump or fall by 10% or more in a single day depending on the latest coronavirus headline. If it appears that the virus is under control and the vaccines are stopping further spread, hotel, airline, cruise stocks and others tend to move sharply higher. The converse is also true. Until the real long-term outcome of the pandemic is known, this trading pattern is likely to stay in place.
However, at some point, it’s likely that Americans will return to pre-pandemic levels of travel. If you’re a believer that we’re turning the corner on the coronavirus, 2022 could be a good time to pick up some stocks in this industry.
Healthcare stocks come in many shapes and sizes, but a number of them seem poised to take advantage of market conditions in 2022.
For starters, healthcare is generally a defensive industry. In times of economic or market uncertainty, consumers still need to visit their doctor, buy their prescription pills and take care of their general health. As the population ages and healthcare expenses continue to rise, pharmaceutical and hospital companies will continue to benefit.
Many of the larger healthcare stocks also pay a sizable dividend, helping them to remain defensive in an uncertain market. But aggressive traders can also find places to put their money in the healthcare field. Companies such as Intuitive Surgical, a surgical robotics firm, and Novavax, a vaccine maker that has developed a COVID-19 vaccine still awaiting approval in the U.S., are more speculative plays in the industry.
Real estate certainly had its moment in the sun in 2021. A combination of factors led to soaring home prices throughout the year, including record-low mortgage rates, the increase in remote workers, a shortage of available homes and a flood of stimulus cash, among others.
But most of these factors still remain in play heading into 2022. The continuing prevalence of the coronavirus, most recently with the rise of the Omicron variant, continues to keep workers in some industries at home, and supply/demand still favors rising prices.
Rental properties are also booming, as rents are rising even faster than home prices in some markets. In Phoenix, for example, rents for some one-bedroom apartments have more than doubled year-over-year. Buying real estate in 2022, either directly or through a REIT, may continue to be a winning play.
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