In financial markets, the trend was undoubtedly your friend in 2021. Vaccinations meant economies could come out of pandemic-induced lockdowns while fiscal stimulus produced a rapid rebound in employment, propelling stock markets to record highs. In fixed income, central banks maintained their quantitative-easing programs, leaving bond yields becalmed. Next year looks a lot trickier.
Inflation is accelerating everywhere, and the supply-chain disruptions that contributed to rising consumer prices aren’t fixed. Labor-market dislocation has given employees bargaining power for the first time in years. Equities are starting to look overheated, particularly if central banks have to react to price pressures by tightening monetary conditions in the coming months. And the omicron variant shows that the coronavirus remains a clear and present danger. Fear could replace greed as the dominant market driver in 2022.