Increased volatility is the big risk to the markets in 2022 and inflation will continue to be fed by rising wages, according to John Leonard, global head of equities for Macquarie Asset Management, who was part of the Americas 2022 Outlook presented by Macquarie today.
The U.S. market will continue to expand and wages will grow by 3% to 4% in the next year, Leonard said during the roundtable discussion. “However, inflation will pull back by the second half of the year,” he said.
Alex Ely, chief investment officer for U.S. growth equity at Macquarie, said he is optimistic about the coming year. “The bull market will continue for equities,” he noted, “and inflation will not upend the markets. Macquarie will invest in innovation that disrupts the norms” because changes to life are moving at a pace never seen before.
For instance, he said, within 10 years, half of truckers will be gone and a large proportion of accounts will no longer be needed because technology is allowing people to handle their own finances. At the same time, home and consumer goods will get a boost in the future and open avenues for investing because people, who are not returning to the office, have more.
However, everything is not clear about the future, according to Daniela Mardarovici, co-head of U.S. multisector fixed income at Macquarie. “We are entering a year where there are more questions than answers facing us. Volatility will be high during this period. While the cyclical (short-term) pressure on inflation will be high, the structural (long-term) pressure will be low,” therefore, inflation will not be a persistent problem.
Mardarovici said she is particularly concerned about the inequality between the ownership class and the labor class. The disparity may not be sustainable, which poses a significant risk to the economy and the markets. “The share of wealth held by labor is at an all-time low,” but there are efforts being made globally, by some countries, to strengthen the middle-class that will impact economies.
On other investing fronts in the United States, the money ready to be put into infrastructure projects is peaking investors’ interest, noted Jenny Chan, head of portfolio and strategy for MIP Funds at Macquarie. “Private capital can partner with governmental spending to expand” market opportunities, she said. “Some assets already are seeing growth levels above where they were before Covid."
Leonard added that the best investor opportunities for the coming year will be in areas where digital transformation is most impactful, such as energy transition industries. To combat volatility, investors should not abandon their fundamental investment strategy, he said.
Ely cautioned that geopolitical changes from Russia and China will keep investors on their toes in 2022.