Where to Invest in 2022

Investors will have to curb their enthusiasm as markets get back to normal.

- By Anne Kates Smith. Illustration by Delphine Lee

The U.S. stock market continues to astound with its resiliency, overcoming obstacle after obstacle like a gold-medal track star clearing hurdles. Pandemic? No longer much of a problem. The highest inflation since the ’90s? Not a deal breaker. Record-high stock prices? We’ll pay up—and buy every dip that comes along, no matter how minuscule.

The S&P 500 index logged 64 new highs in 2021 (as of early November), the second-highest annual total in index history. Since our January 2021 outlook a year ago, the broad market benchmark has returned 35.8%, including dividends. We said at the time to expect low-double-digit returns, but that if we were off, it would be because we were too conservative. At midyear, the upper end of bullish 2021 price targets for the S&P 500 among Wall Street strategists reached the 4600 mark. On November 5 (the date for prices, returns and other data in this article), the index closed at 4698.

Will the juggernaut continue in 2022? Our answer is a qualified yes. It has proved to be a mistake to underestimate corporate America, and the market enjoys some strong fundamental underpinnings. But the old challenges remain, and new ones have surfaced. So, once again, we encourage investors to moderate their expectations. You can only reopen an economy once (fingers crossed), and we are likely at or past peaks for growth rates in the economy and corporate profits. “We head into the new year with a glass-half-full outlook,” says Eric Freedman, chief investment officer at U.S. Bank Wealth Management. “But like most market environments, this one is a mosaic of risks, some forecastable and some not.”