How Much Higher Can Treasury Yields Go?

 

We expect interest rates to move modestly higher in 2022 based on near-term inflation expectations above historical trends and improving growth  expectations once the impact of COVID-19 variants recede. Our year-end 2022 forecast for the 10-year Treasury yield is 1.75–2.00%. An aging global demographic that needs income, higher global debt levels, and an ongoing bull market in equities may keep interest rates from going much higher.

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Stock Market Outlook 2022

 

We expect solid economic and earnings growth in 2022 to help U.S. stocks deliver additional gains next year. If we are approaching—or are already in—the middle of an economic cycle with at least a few more years left (our view), then we believe the chances of another good year for stocks in 2022 are quite high. We believe the S&P 500 could be fairly valued at 5,000–5,100 at the end of 2022, based on an EPS estimate of $235 for 2023 and an index P/E between 21 and 21.5.

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Economic Outlook 2022

We believe pent-up demand, gradual improvement in supply chain challenges, solid labor force growth, and productivity gains will all contribute to another year of above-trend economic growth in 2022. COVID-19-related risks remain and the potential for a policy mistake may be elevated as the economy moves towards normalization, but we think the overall environment will be supportive of business growth and ultimately equity markets.

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Three Reasons To Be Thankful

 

There are only six weeks to go in 2021 and it has been an incredible year for the stock market bulls. In fact, in many ways it could go down as one of the best years ever. This week, in honor of Thanksgiving, we wanted to take a closer look at three reasons to be thankful. From the stock market to the economy, there are indeed many reasons to be thankful this year.

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A Peek At Inflation: Five Signals to Watch For

 

After an upside inflation surprise in October, it’s clear that peak inflation may still be ahead, possibly even pushing into 2022. While the Federal Reserve (Fed) maintains its position that elevated inflation will be transitory, we have yet to see progress. Below we look at five signs to watch for over the next
several months that may signal that inflation may be near or at its peak.

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Developed International: If Not Now, When?

 

 

 

 

 

 

 

Since we began our investing careers, we’ve had the concept of  diversification drilled into our heads. Some refer to it as the only free lunch in investing. Well, when it comes to geography, that advice hasn’t been helpful for some time (you could say the same about value-style investing). Staying close to home and favoring the United States won’t always be the best move, but for now, we think it still is—as we discuss here.

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Five Things That Might Spook Markets

With Halloween over the weekend, what better to write about this week than what scares us? If our positive near-term market outlook proves to be overly optimistic, we believe one—or perhaps more than one—of these five  things will likely be the culprit: inflation, an aggressive Federal Reserve, profit margin pressures, pulling forward of seasonal gains, and potentially overly  bullish sentiment.

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Bullish Setup Into Year-End

 

 

 

 

 

 

 

The S&P 500 Index has gained more than 20% so far this year, making more than 50 record highs along the way. Certainly nobody should be upset with that return if that was all 2021 brought us. However, we see signs that there could be more gains to come in the final two months of the year. Seasonal tailwinds, improving market internals, and clear signs of a peak in the Delta variant all provide potential fuel for equities heading into year-end, and we maintain our overweight equities  recommendation as a result.

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Q3 Earnings Preview: Less Upside

 

We have used most of the superlatives we know to describe corporate America’s stunning performances over the past two earnings seasons. Despite lofty expectations, results exceeded estimates by the biggest margins we’ve ever seen (and one of the authors of this report has been doing this for 23 years). We expect solid earnings gains during the upcoming third-quarter earnings season, but upside surprises will be smaller. Unfortunately, we won’t need as many superlatives.

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