At the end of every year, we tend to see plenty of stock market forecasts for the year ahead. Already, I’ve seen many 2022 predictions for the FTSE 100, including a few that reckon the index will end the year on a record high of 8,000 points.
Personally, I think trying to predict what level the FTSE 100 will finish 2022 at is a pointless exercise. That’s because, realistically, no one has any idea at all where it will end up. That said, I do have a number of more general predictions for the Footsie in 2022. I’ll share them with you below.
FTSE 100 predictions
Before we get into my outlook for next year, it’s worth looking at how my predictions for this year have fared.
For 2021, I predicted that:
It would be a better year for dividends.
The Footsie would not generate the strong returns some investors were expecting.
There would be a minimum of one pullback of at least 10%.
I landed two out of three here. It has certainly been a better year for dividends. Meanwhile, the FTSE 100 has delivered returns well below those generated by US and European indexes. We haven’t seen a 10% pullback however. So far this year, the maximum drawdown has been a little over 7%.
Predictions for 2022
Looking ahead to 2022, these are my three predictions. First, many FTSE 100 companies will be impacted by inflation and supply chain challenges. Companies that could be hit include consumer staples companies like Unilever, supermarkets such as Tesco and Sainsbury’s, and industrial companies like Mondi and DS Smith. So I don’t want to have too much portfolio exposure to these kinds of enterprises.
Next, financial firms will perform well. I’m expecting interest rates to rise in 2022, both in the UK and in the US. This should benefit financial companies such as banks, insurers, and investment platforms. In terms of investment opportunities here, I’m not too keen on buying bank stocks for my portfolio, as I believe they are likely to face serious disruption in the years ahead. This is mostly due to advances in financial technology (FinTech). However, there are a few FTSE 100 financial stocks I do like. Investment platform Hargreaves Lansdown is one. Insurance group Prudential, which is now focused purely on Asia and Africa, is another.
Finally, the FTSE 100 will underperform the S&P 500. The UK lead index has lagged its US peer every year since 2017. And I think there’s a good chance it will do so again in 2022. The reason I think the S&P will be the better-performing index is that its top holdings include Microsoft, Apple, Amazon, and Alphabet – all of which are growing at a spectacular rate right now. By contrast, the FTSE 100 has Shell, AstraZeneca, BHP, and Unilever as its top holdings. These companies are not generating the same kind of growth as the tech giants. Now this prediction could backfire on me if economic growth is very strong and interest rates rise significantly. This scenario could benefit lots of FTSE 100 companies. However, I remain quite bullish on large-cap US tech stocks so I plan to keep building my portfolio around them in 2022.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Alphabet (C shares), Amazon, Apple, Hargreaves Lansdown, Microsoft, Prudential, and Unilever. The Motley Fool UK has recommended Alphabet (A shares), Amazon, Apple, DS Smith, Hargreaves Lansdown, Microsoft, Prudential, Tesco, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.