Biden is entering the second year of his presidential term — and here’s why that’s a bad sign for the market.
Stocks tend to underperform their long-term averages in the second year of the US president’s term — according to data from S&P Global Market Intelligence (via WSJ).
One speculation is that presidents try to enact less market-friendly policies — well ahead of the midway elections.
WSJ also gives 5 reasons why the market could be weaker in 2022:
- COVID relief is coming to an end with the Fed recently announcing the start of tapering — reducing monthly bond purchases.
- Monetary policies — which influences the direction of the markets — won’t be as easy going as it was in 2021 with interest rates expected to rise.
- Corporate earnings are likely to slow in 2022 from the negative impacts of inflation, and high-demand post-COVID could lose steam.
- Market valuations are at record highs with the CAPE ratio trading at its highest level since 2000.
- The S&P 500 is up 26% this year — much higher than its long-term average of 10-11% — which could set the market up for a weaker year.
What are experts saying? Stock selection could be harder in 2022 with corrections potentially coming.
- Expect rising costs among companies with varying impacts on sectors and companies — making stock selection a challenge — according to the chief equity investment officer of Eaton Vance Management.
- During the good times, investors overlook high valuations. But when the market gets riskier, investors could decide which stocks are overvalued — leading to corrections — according to Timothy Murray, market strategist at T. Rowe Price.
