In the third quarter of 2021, U.S.\ncorporate earnings notched a new all-time quarterly record, surpassing the\nrecord set in the preceding period. It is also true that earnings growth rates\nhave come down and are projected to fall further in the coming periods, but in\nmy view, that just signals a normalization of earnings trends from a relatively\nbizarre and unexpected two-year period. Earnings surprises \u2013 which have largely\nbeen to the upside \u2013 are moderating towards the longer-term trend.1<\/sup><\/p>\n\n\n\n _________________________________________________________________________<\/p>\n\n\n\n Focusing on Key Data and Fundamentals in Q1!<\/a><\/strong><\/p>\n\n\n\n We made it to 2022! <\/p>\n\n\n\n With the wide range of events that we\u2019ve experienced in 2021\n(especially surrounding the ongoing pandemic), it\u2019s expected that investors\nwill feel uncertain about this year\u2019s performance. But, to help you make the\nmost of the new year, I suggest focusing more on the fundamentals and data that\nwill help you achieve your investment objectives!<\/p>\n\n\n\n The key is long term financial success – and to help you accomplish this, I am offering all readers our just-released Stock Market Outlook report. This report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 _________________________________________________________________________<\/p>\n\n\n\n Looking ahead, I think\ncorporations still see an environment of elevated demand for goods and services.\nThe aggregate tally of total earnings remains very high, and there is a breadth\nof strength across all the key sectors. But we also know that the unusually\nhigh growth rates of 2021 will not continue into the new year, as they in part reflect\neasy comparisons to the year-earlier periods that were severely impacted by\nCovid-related disruptions. Here again, we see a normalization of earnings\ngrowth trends.<\/p>\n\n\n\n Inflation is the one dynamic that may give\ncorporations some problems in the new year, but I think many companies have the\npricing power and market share to navigate price pressures successfully. In the\nnew year, investors will have an important mandate of evaluating companies by\ntheir ability to navigate (or pass along) price increases, in my view. <\/p>\n\n\n\n Inflation Trending in\nStocks\u2019 Favor<\/strong><\/p>\n\n\n\n Inflation is likely to remain the biggest concern as we push\ninto the new year, and I think price pressures will probably persist for a few\nmonths at least. But the inflation story does not automatically have to be\nnegative for 2022, for two reasons.3<\/sup><\/p>\n\n\n\n The first is that stocks are one of the best asset classes available\nin a world of inflationary pressures, in my view. The data also backs me up \u2013\nlooking back to the 1920s, one would find that stocks tend to do quite well in\nmoderate (5% to 10%) inflationary environments. The relationship breaks down\nwhen inflation becomes runaway (greater than 10%), but I do not see that\noutcome as remotely likely \u2013 particularly as the Federal Reserve plans to shift\npolicy objectives in 2022. <\/p>\n\n\n\n Second, I would not underestimate the ability of consumers\nand businesses to navigate the inflation issue. The jobs market in the U.S. is\nextremely tight at the moment, and wage pressures have given many workers\nhigher incomes as the new year begins. <\/p>\n\n\n\n Savings also remain elevated, and demand for goods and\nservices has not flinched much even with elevated inflation. Businesses have\nalso been able to pass along rising costs where needed, contributing to\nrecord-setting earnings that I believe will continue in the new year. <\/p>\n\n\n\n Cash on Hand<\/strong><\/p>\n\n\n\n In the previous section, I alluded to elevated savings for\nhouseholds, but an economic fundamental less cited is that businesses also set\naside enormous amounts of cash as the pandemic played out. As confidence\nimproved in 2021 \u2013 even as the pandemic entered new phases \u2013 businesses started\nto spend some of their excess cash reserves on dividends and share buybacks.\nAbout 50% of Russell 1000 index companies raised or initiated a dividend in\n2021, a strong showing.5<\/sup> <\/p>\n\n\n\n The other factor in having healthy amounts of cash on the\nbalance sheet is a private fixed investment, which is a technical way of saying\nbusiness investment in equipment, infrastructure, labor, etc. U.S. corporations\nhave been investing again at pre-pandemic levels (chart below), and I see this\nactivity \u2013 along with more dividends and share buybacks \u2013 increasing more in\n2022.<\/p>\n\n\n\n On the investment side, excess cash has been making its way\ninto the capital markets, and in particular the stock market. In 2021 alone,\nnearly $1 trillion has flowed into equity ETFs and mutual funds, which is more\nthan the previous 19 years combined.<\/em><\/p>\n\n\n\n Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n Perhaps the factor that keeps me most optimistic about 2022\nis the feeling that few investors are optimistic with me. I see an environment\nwhere sentiment about the economy and markets is more negative than positive,\nwhich to me signals a palpable wall of worry that stocks generally tend to\nclimb. If the economy can deliver outcomes even barely better than most expect,\nstocks are likely to respond positively to the surprise. I think 2022, much\nlike 2021, is set up nicely for this dynamic.<\/p>\n\n\n\n
IT\u2019S FREE.\u00a0Download the Just-Released January 2022 Stock Market Outlook<\/a>2<\/a><\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_pic1-1024x395.png\")
![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/pic2-1024x395.png\")