Consider a Flat Year for Stocks in 2022 a Success
Keep an eye on the yield curve, the undisputed heavyweight champion of market indicators.
Will the bull market get tamed in 2022?
Photographer: Spencer Platt/Getty Images
In talking with a number of market players the last few weeks, there seems to be a broad consensus that 2022 is going to be more challenging than 2021, which almost makes me wonder if stocks won’t be up another 20% next year, defying bearish expectations yet again. But things are a little different than this time a year ago.
For starters, the Federal Reserve is beginning the process of reversing its ultra-loose monetary policy. It’s not moving fast enough relative to the inflation that was unleashed, but it’s doing so in an environment where markets are increasingly sensitive to the potential for higher interest rates, due to the vast amounts of leverage in the system and the amount of government debt incurred in the last few years. The Fed hasn’t increased rates yet, and probably won’t until March, but the yield curve has already flattened to a very slim 80 basis points, suggesting that we are moving ever-closer to a recession.