By Megan Horneman. © Verdence Capital Advisors
As we work to clean out our refrigerators of the dried-out turkey we have been feasting on the past five days, the mad rush through the annual holiday season begins. In this weekly, we’re offering our “Wish List” for the economy and markets for the remainder of 2021 and 2022 by creating a spin on the traditional 12 days of Christmas.
- First day of Christmas –We hope for a watered-down Build Back Better plan. Something with a one ($1 – $2 trillion) handle in the price tag (closer to one than two) would be better for inflation, inventories, and the supply chain.
- Second day of Christmas – We are wishing for two Fed rate hikes in 2H22. The market has priced that in. Anything more may send yields soaring. Anything less may fuel inflation fears and disrupt the equity rally.
- Third day of Christmas – The average gallon of regular gas has increased $1.15/gal this year (to $3.40/gal). We are hoping for relief at the pump and would even take a three-dollar gas price. Still not to pre-pandemic levels (mid $2.00 range) but offers relief to Americans.
- Fourth day of Christmas – We wish the labor force participation rate would jump four percentage points. That would surpass the pre-pandemic level and be the highest since 2008. We need more Americans to fill the record job openings!
- Fifth day of Christmas – Regardless of your opinion of the future of gold prices, who would not want five golden rings at nearly $1800/oz!
- Sixth day of Christmas – In a negative interest rate world who would not want stable dividend growth. A six percent dividend growth rate would meet the expectations for the MSCI AC World Index and be a little higher than the historical average.
- Seventh day of Christmas – Sustaining a seven percent or higher on the personal savings rate would be nice. It recently fell from a record high. With prices rising, having extra savings reduces the need to turn to credit.
- Eighth day of Christmas – While not the expectation, China returning to an eight percent annual growth rate would be good for global growth. We need China to pick up manufacturing and shipping!
- Ninth day of Christmas – It will be hard for the S&P 500 to deliver similar returns in 2022 as seen in 2021 (~24% YTD). We think returns will be more globally diversified and hoping for the MSCI AC World ex U.S. Index to deliver a nine percent return in 2022 (slightly higher than average ~8%).
- Tenth day of Christmas – A 10% percent increase in consumer confidence would bring it back to the average level in the three years leading up to the pandemic. It should support spending and GDP!
- Eleventh day of Christmas – With the v-shaped recovery in earnings behind us we expect more normal earnings growth in 2022. We are hoping for an 11% S&P 500 earnings growth rate. That would beat the 8% expectation (usually earnings beat 3-5%).
- Twelfth day of Christmas – We are wishing for 12 FDA-approved COVID therapeutics. There is only one approved but 11 more approved for emergency use. Having 12 therapeutics available will not only help us adjust to life with COVID, but it can also reduce serious infection and ease up on the vaccine debate (as therapeutics may also help reduce serious infection like the vaccine).
This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.
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By Megan Horneman