Gill Fielding’s Stock Market Predictions for 2022
The main global stock markets actually did very well in 2021 and the S&P 500 (USA) hit an all time high and the FTSE 100 (UK) grew by over 11% in the year but within those overall trends there have been some serious peaks and troughs and that’s because of negative worldwide sentiment.
Share prices are moved by a combination of the fundamentals of the underlying company (sales, earnings, profitability, trends etc.) plus sentiment which is what the human beings in the market think and feel about a particular company and their share price. Well, that is what drives a share price in a non pandemic world but nowadays the price of shares is driven by all those things plus the sentiment around Covid. For instance, when the Omicron variant of the Coronavirus was announced, all the major global stock market indices fell between 1% – 2% in a day.
The world has been traumatised by Covid and as soon as any new development happens with that – either positive or negative – the stock markets all react accordingly.
Normally what would happen is that a share price would be affected only if the development or announcement had something to do with that particular company or market sector, but now when a Covid announcement is made ALL share prices are affected because everybody then feels upbeat or downbeat and that impacts their willingness to buy or sell shares – or even to go out!
There have been some phenomenal rises of particular stocks and certain sectors: home delivery, and communication systems for example, but there have been some big fallers too: travel and leisure for instance.
But what can we do going forward?
1. Accept this extreme volatility. It isn’t going to end anytime soon and some people expect Covid to be with us for a few years yet and although people will gradually get used to that new reality, there will be a global general negative sentiment.
2. Don’t try and pick the winners – or losers – as we can’t rely on the normal fundamentals to give us a clear guide as to the share price. We could be ‘lucky’ and hit the right stock at the right time but all big gains made from lifestyle changes due to the pandemic have already probably been made.
3. Spread the portfolio and spread the risk even more thinly than normal. Diversity is key as that provides some certainty and security.
4. Consider investing in indices and/or managed funds which have a large spread or diversity of underlying assets and sectors as this will again spread the risk.
5. Enjoy the ride! The stock markets overall have held up incredibly well during the pandemic and there’s every indication they will continue to do so. Some commentators are predicting very high growth in 2022. However we have seen in 2021 that the markets’ peaks and troughs have been larger than normal so make sure you’re investing for the longer term, AND don’t forget to re-invest dividends to get the maximum growth on your money.
The stock market is a wonderful investment and for now my New Year’s Resolution for 2022 is to spread that risk and buy indices!
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