Brian Belski’s 2022 North American Market Outlook

Hello,

This is Brian Belski, Chief Investment Strategist at BMO Capital Markets.

We believe North American stocks will post their fourth consecutive year of positive returns in 2022 – albeit less positive – but that is very OK and very normal. 

With respect to US stocks, our models show that the S&P 500 Index will attain a price objective of 5,300 on earning of $245.

With respect to Canada, our TSX models show ta 24,000 target on earnings of $1,500.

To clarify even further, we believe this “less positive” trend does not apply only to price performance – but also to less positive earnings growth and diminished valuations – not to mention, a slowing trajectory of rising interest rates – and, yes – the strong possibility of decelerating inflation – especially during the second half of 2022.

Simply stated, double-digit earnings growth, still excessively low interest rates, declining valuations, and eventually subdued inflation are a very good backdrop for equities.

Remember, equities are traditionally the best inflation hedge – and, yes, stocks can, will, and should go up alongside interest rates – after all, rising bond yields means the economy is improving – which the stock market has already been telling us thanks to its powerful rally in the past few years in both the United States and Canada. 

In terms of positioning, over the next 12-18 months, we are advising clients to Overweight the following in their equity portfolios: Financials, Discretionary, Industrials, and Materials, while equal weighting both growth and value, let alone small, mid and large cap stocks.

However, clients are encouraged to differentiate these positions by increasing their focus on quality, growth-at-a-reasonable-price, and dividend growth across all size, styles, and sectors

Taking a bit of a longer-term picture with respect to North American equities, we continuedly believe US is in a 20- to 25-year bull market, and Canada is coming along for the ride. 

After all, as America goes so goes Canada. 

However, over the next 3-5 years we believe returns will become more normalized in both countries to the tune of high single digit to lower double-digit returns. 

With longer term time horizons with respect to sector divisions in both countries centered around Technology, Communication Services, Discretionary and Financials.

To be clear, society had been nothing less than tumultuous the past few years. 

However, equity markets around the world and investing in general have been very exciting to say the least, but as markets, let alone society itself begins to normalize and moderate over the next few years as the great unwind of the COVID19 pandemic ensues, we continue to focus on the positive – because after all, positive is still positive.