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What we got right and wrong in 2021

Here’s a look back at our market views, and what’s ahead in the coming year.


Our Top Market Takeaways for December 10, 2021.

Looking back

Our report card

As we get close to wrapping up another year, we’re taking a look back at examples of what we got wrong, doing a little victory dance for what we got right, and giving our best Marty McFly impression for what we’re expecting for the future.

Here’s what we got wrong:

Expecting inflation to only pick up “modestly.” Heading into 2021, we thought it was more likely that prices wouldn’t rise fast enough, or would actually fall—not that they’d rise too fast. After all, U.S. consumer prices only rose a paltry +1.4% last year—the smallest year-over-year increase since 2015—and the labor market was still in disarray. We acknowledged supply chain disruptions from de-globalization could put upward pressure on prices, but thought that process would play out over years, rather than months. Needless to say, that’s not what happened.

A highly adaptive U.S. consumer sent demand for goods soaring against already COVID-19-disrupted supply. Looking forward, we think we still have a few high prints ahead of us (today’s print showed inflation is running at 6.8% year-over-year). But as economic healing continues, and consumers shift their spending preferences from goods back toward services, we expect inflation to cool toward the Federal Reserve’s 2% target by the end of next year. Importantly, that’s still higher than it was in the last cycle, which ties with our outlook for a strong growth environment. This should give the Fed some leeway to wait for the labor market to make a more complete recovery before interest rate liftoff.

Calling emerging markets our top trade, and focusing on China. We thought global economic healing, a weaker U.S. dollar and growing exposure to technology would bode well for emerging markets this year. Yet, such economies struggled with vaccine distribution and lacked the policy space to cushion continued pressure on growth. The U.S. dollar also strengthened, making it harder to service debt.

The biggest thorn, though, unequivocally came from China, which faced a slew of headwinds, including stagnating growth, pressure on the property sector, regulatory scrutiny, and more recently, delisting concerns. The offshore MSCI China Index has lost -18% year-to-date. Chinese tech is down an eye-popping -28%. That weakness has brought broader emerging markets -4% lower this year, which makes it worth noting that ex-China, the group is actually up +9% (thanks to notable outperformance from India, Taiwan and Russia). To be sure, opportunities in emerging markets do exist, but it’s all the more important to be selective—onshore (domestic) China (which is more insulated from the regulatory and delisting risks), Taiwan and Korea are a few of our favorites to get exposure to in 2022.

Thinking rates would rise more than they did. At one point, we thought U.S. 10-year Treasury yields could finish this year around 2%, thanks to the early innings of the economic expansion, ongoing fiscal support, and again, “modestly” rising inflation. To be sure, rates did rise—from 2020’s lows of 0.50% to as high as 1.75%. Yet, lingering concerns around COVID-19, such as the Delta variant, slower Chinese growth, lack of commitment from the Fed to its new flexible inflation targeting framework, and technical factors such as forced unwinds biased yields lower. The 10-year sits around 1.50% today.

To be sure, low rates also created a supportive investing backdrop, fueling risk assets higher. Heading into 2022, we think improving growth and the Fed’s incremental removal of support should push Treasury yields to 2.15% by year-end. Once it does, core bonds could actually look compelling again.

But hey, here’s what we got right!

Calling for stocks to reach new highs, with big thanks to earnings. The S&P 500 has made 66 new all-time highs this year—only 11 away from beating 1995’s record of 77. We said in our 2021 Outlook that high valuations were justified, and that has proven true. S&P 500 companies look on track to have generated over 45% earnings growth this year—the greatest since 2010. Margins—or the rate in which companies generate new earnings—are likewise at all-time highs. That has pushed the index +25% higher this year, despite the 5% decline in valuations. In short, embracing the optimism was the right move. Looking ahead, that pace is likely to moderate, but we still think U.S. companies can pull off another 15% earnings growth in 2022.

Balancing both cyclical and growth areas of the market. As recovery gave way to expansion, we shied away from defensive sectors and advocated for a balance between: 1) those stocks most-geared toward the economic cycle, and 2) those that stood to drive secular, above-trend growth. Here, we believed that megatrends such as digital transformation, healthcare innovation, and sustainability would continue to offer investors above-market levels of potential returns. That ended up being the right call. Technology and financials, for instance, have bested the S&P 500, while utilities and staples are at the very bottom of the pack.

We continue to advocate for such balance into the year ahead, and innovation is a key theme. Automation, capital investments and infrastructure spending are transforming industrials. Financials tend to benefit from rising interest rates. Digitization of all businesses remains a key driver of growth, and tech has led U.S. margin expansion for the past 20 years. Healthcare is growing more personalized, preventative and powerful.

Reimagining the 40. The environment for traditional fixed income has been a challenge for investors globally. With rates at lows, traditional fixed income has offered less capital preservation and income than it has historically. That’s why we focused on opportunities to rethink traditional bond allocations in portfolios by giving up liquidity to generate income from real estate investments, or taking a little more risk by moving into the upper-tier portion of high yield bonds or preferred securities, for example. A look at returns across fixed income this year suggests that was the right call, and it’s one we continue into 2022:

Finally, where do we go from here?

As we said in our recently released Outlook 2022, we believe the foundations have been laid for a more vibrant economic cycle ahead.

This means we favor stocks over bonds, and bonds over cash (our least favorite asset class). We expect double-digit earnings growth to drive stocks to new highs this year, and are still keen to couple growth areas of the market (such as technology and healthcare) with cyclical sectors (such as industrials and financials)—but particularly with a focus on those quality companies that can deliver despite short-term disruptions. Innovation is a key theme.

The environment is still challenging for core fixed income, but we can use dynamic active managers as a complement to navigate potentially turbulent fixed income markets. And given aggressive expectations for central bank rate hikes (the market is calling for 2–3 hikes next year, while we’re calling for one), we think investors have an opportunity to leg out of cash and into short-duration fixed income. Real assets can help investors add inflation protection to portfolios.

As always, your investment decisions should reflect your goals, investment horizon and risk tolerance. Working with your J.P. Morgan team to build the right portfolio for you is key. Here’s to another year of Top Market Takeaways ahead. Thank you for joining us on this journey; we’re grateful.


All market and economic data as of December 2021 and sourced from Bloomberg and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


  • Past performance is not indicative of future results. You may not invest directly in an index.
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All market and economic data as of December 2021 and sourced from Bloomberg and FactSet unless otherwise stated. 

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