10 Market Factors Advisors Should Consider for 2022 | Financial advisers

As financial advisers and clients begin to dive into vacation mode and 2022 creeps in, there are many factors impacting how markets work. Advisors should take this into account.


As experienced advisers know, many clients take advantage of their free time at the end of December to withdraw into themselves. This often leads to a deluge of questions about what investment strategy their advisor currently has in place and what they have in mind for the new year.

Don’t let 2022 take hold of you. Halloween is over, and the rampage should be over too. Be proactive to understand the many factors that will propel the markets from here to next year and beyond.

Considering what investors have seen in years like 2018, when the S&P 500 plunged 15% in December in three weeks, recognizing these portfolio influences early on is a good idea.

Even if you use a third-party service to do the work of your investment strategy for you, ultimately the client looks to you as their guide. Here is an overview of 10 investment strategy factors you should be prepared to discuss with your clients.


On inflation, some strategists are sounding the alarm as food and energy prices rise. Others use expressions such as “transient” to describe a temporary increase in the cost of living.

Either way, inflation is a more active topic than it has been for a long time. So far, the bond market has cared more than stocks, with bonds selling while stocks trump.

As always, the biggest issue for your clients may not be the advertised level of inflation itself. Instead, it is the willingness of the markets to panic over the fear of inflation. This alone can shake the portfolio levels.

Federal Reserve Policy

The Federal Reserve recently announced the start of the expected reduction in the pace of its long-term bond purchase program.

While a so-called “taper” of this program may not mean much in relative dollars, given the Fed’s inflated balance sheet, it has the potential to be an emotional pivot point for markets. If that doesn’t happen in 2021, then be careful in 2022.

Low bond yields

Over the past 15 months, the 10-year US Treasury bond rate has fallen from 0.5% to almost 1.6%, while high-yield bonds are earning less than before.

This probably produces two results in 2022 and the following years. Either bond portfolios will yield low positive returns, or they will lose a little, or they will lose a lot. Of these three potential outcomes, two are bad and none is excellent.

US fiscal policy

The level of congressional confidence in voters and investors is low. And whatever decisions are made on infrastructure, taxes and other initiatives, there will be market noise and partisan resentment.

It’s a double-edged sword for advisers. They need to intelligently discuss the subject with customers, as the markets will be impacted. However, advisers want to be careful in their communication, given the charged political climate that has enveloped Americans for decades. Walk carefully.

Retail investors

Big investors laughed at the “little guy”. Now the playing field has leveled out somewhat.

While some investors have used the era of commission-free trading and ubiquitous investment opinions to become stock market players, many have jumped at this opportunity to learn how to invest like professional portfolio managers do.

This may involve creating their own decision-making process and structure, or learning and copying someone else’s techniques. Either way, it threatens a part of the financial adviser’s world. Sophisticated financial planning still requires knowledge that professionals such as licensed financial planners have developed. But many retail investors find that they can invest their money the way you do, and at a much lower cost.

The sheer size of the retail investor market prompts seasoned investors to adapt, adopt and educate them. And while these investors may not have gone through a prolonged bear market cycle for stocks or bonds, and may not know what they don’t know, you can’t count on them to come. to you after the next bear market. Let’s face it: many investment portfolios built by advisors don’t hold up well in tough markets, either. The key is to meet retail investors on their terms by adding value through your experience and direct access to expertise.

Dominance of big tech stocks

Only five shares, Meta Platforms Inc. (ticker: FB), soon to be marketed as MVRS, the parent company of Google, Alphabet Inc. (GOOG, GOOGL), Netflix Inc. (NFLX), Apple Inc. ( AAPL) and Amazon.com Inc. (AMZN), constitute approximately 22% of the S&P 500 and 41% of the Nasdaq 100.

You can think of this as a misleading lack of diversification. Clients think their money is spread over 500 stocks when they invest in the S&P 500, but in reality most of those stocks don’t matter to the index.

Or you could think of it as relying on the continued success of yesterday’s winners. But your investment process must take this very dot-com phenomenon into account.

Post-pandemic economic growth

The coronavirus pandemic has destroyed a lot. One of the more recent casualties concerns supply chains and year-over-year comparisons of key economic data such as employment, factory orders and consumer confidence.

This reality opens up a wide variety of Wall Street business turnover techniques for you and your clients, who can use the chaotic patterns of these numbers to try and say what’s right for their agenda. Be the one to help your clients navigate the fog, gain clarity, and find solace in their investment positioning.

Market sentiment

Just ask happy Bitcoin investors. When an asset is described one day as a currency, the next as a replacement for gold and a ‘store of value’, and the next day as simply the future of our financial system, whatever your customers want to know, that’s how to score.

This is where you really need to get to the bottom of what they want out of their investment portfolio. Cryptocurrency is a way to speculate in a volatile asset class that has yet to reach its “permanence” in the investment markets. However, this is far from the only way for them to add potential high risk, high return assets to part of their portfolio.

The key here is the feeling. While still at its peak, counselors can identify what the herd is buying with both hands and join them. Recent examples include alternative energy, fintech, cybersecurity, and some lesser-known commodities such as lithium. Do your research and don’t overdo it in terms of how much you allocate to these attempts to take advantage of unusually strong investor sentiment.

Business profits

These mattered because they really told you something about the progress of a business. But these days, beating expectations is what moves stock prices.

This concept fed on itself for twenty years and created an environment in which any business, no matter how strong and sustainable, can see its stock price fall by 10% or more in response to quarterly earnings announcements. And it’s in a bull market.

This is something your long-term-focused clients must come to terms with as part of an equity investment. Or you can help them by making room for tactical strategies alongside their long-term approach.

Stock valuations

Of course, there are always people who will try to justify market valuation levels as reasonable or even cheap. But with the Fed injecting support into the trading system over the past five years, there’s probably a lot of air under these valuations.

They are high and can stay high for a while, but this reality will matter. As with so many items on this list, everything is fine until the masses in the market decide that this is a problem. When this happens, the herd runs towards the exits as if someone is shouting “fire” in a crowded theater. And you’ll have to explain to clients why their wallets have taken a nosedive.

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