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December 2021 / GLOBAL MARKET OUTLOOK

2022 Global Market Outlook

Playbook for a shifting economic landscape

After consecutive years of strong performance for most equity and credit sectors, T. Rowe Price’s investment leaders urge greater selectivity in 2022, as global market prospects appear more uncertain.

While the omicron variant – and the possibility of renewed lockdowns – are still threats, the primary economic focus for 2022 has shifted to the risks that higher inflation and interest rates could pose for growth and asset returns. However, on the positive side, household wealth gains, pent up consumer demand, and a potential boom in capital expenditures, could sustain growth – even as monetary policy turns less supportive.

In the below view for 2022, Sébastien Page, Head of Global Multi Asset, Justin Thomson, CIO and Head of International Equity, and Mark Vaselkiv, CIO Fixed Income, highlight the key factors driving global markets and the actionable insights needed to navigate the shifting economic landscape.

Explore our four themes:

Recovery can overcome inflation and omicron

Despite headwinds from the pandemic, the global economic recovery still appears on track – but inflation risks have risen. In 2022, investors will need to watch what fiscal and monetary policymakers do to try to stem price pressures while sustaining growth. 

Although the emergence of the highly mutated omicron variant is a reminder the pandemic is still with us, the net economic effect of past waves – such as the spread of the delta variant – has been to postpone activity, not prevent it. This pattern could give a modest boost to growth in the first half of 2022.

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Equity enigma as stocks both expensive and cheap

Global equity markets demonstrated resilience in 2021, although the rise of the omicron variant put a dampener on optimism as the year drew to a close. In 2022, the question is whether earnings growth will continue to support US equity valuations that appear stretched in absolute terms.

Although signs of speculative excess abounded in 2021 – in areas like cryptocurrencies and non-fungible tokens – the US stock market currently does not appear to be in bubble territory. However, equity valuations are a bit of a puzzle.

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Credit paradise cannot persist forever

With inflation emerging as both a leading investment risk and a hot political issue, a turn toward higher interest rates appeared to be underway as 2021 ended. Yet, with Covid‑19 still clouding the outlook, global central banks were moving at different speeds.

As usual, the Fed holds centre stage. As of late 2021, market expectations were rising that the Fed would begin tapering its quantitative easing bond purchases at a faster pace early in 2022. But there may be a disconnect between investor perceptions of Fed policy and the inflation expectations priced into fixed income yields.

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Capex revival on global green revolution

Vulnerable supply chains, crumbling infrastructure, higher energy prices, and a longer‑term need to reduce carbon emissions have all helped push economic sustainability to the forefront of the global policy agenda. This could boost public and private fixed investment in 2022, supporting economic growth.

Global corporations appear to have ample resources to finance fixed investment, thanks to strong earnings, spending restraint amid the pandemic, and a surge in low‑cost borrowing. The cash holdings of the companies in the S&P 500, for example, totalled nearly US$2trn at the end of September 2021.

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