An exclusive look at JPMorgan Asset Management’s 2022 investment outlook reveals the 4 market sectors the company is most bullish on – and why rich US valuations and inflation aren’t worth worrying about …

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  • JP Morgan Asset Management has shared its 2022 investment outlook exclusively with Insider.
  • The company expects strong earnings to push US stocks higher despite concerns about valuation and inflation.
  • Here are the four sectors on which the firm is most optimistic in 2022.

JP Morgan Asset Management (JPMAM) is the latest Wall Street titan to scrutinize its crystal ball ahead of the New Year.

In short, JPMAM is broadly constructive on economic growth and inventories over the coming year as the global economy recovers from the pandemic, which continues to recede as a threat as rates of vaccination are steadily increasing. The new Omicron variant is worth watching, but there’s no reason to panic just yet, a team of JPMAM global strategists led by David Kelly wrote in the report.

The following is JPMAM’s take on U.S. stocks, the economy, and inflation to 2022, provided exclusively to Insider ahead of its public release.

Profits should deflate bubble and inflation fears

US equities have dominated their international peers for most of the past decade, but there are several compelling reasons why this outperformance may come to an end.

YF US vs intl
This chart shows the performance of the Vanguard Total International Stock Index Fund (VGTSX) in dark blue versus the S&P 500 in light blue.

Robust economic growth in the United States has likely peaked and is expected to slow further as the country nears full employment, Kelly wrote, adding that the flood of fiscal stimulus that helped end the shorter recession never saved dries up. Plus, US stocks have been trading at historically high levels for a long time, and the bubble chatter refuses to end.

Pair these worries with fears about inflation, which is currently at 31-year highs, and it’s no wonder so many investors are worried as the new year approaches.

In their report, Kelly and her team cut the noise to provide investors with a simple piece of advice: Focus on profit growth in 2022.

“The coming year should see earnings become the primary driver of returns as the US stock market continues to rise to its above-average valuation,” Kelly wrote.

Strong gains in corporate earnings should justify seemingly wealthy valuations in US stocks, Kelly wrote, as they did in 2021. S&P 500 earnings have crushed expectations this year by rising about 70%, despite fears that rising input costs and wages could damage profit margins.

Companies have “aggressively” cut spending and have been successful in passing price increases on to customers, Kelly wrote. Pressure on margins has forced management teams to reinvest in their businesses to increase productivity – a trend that Kelly says will continue until 2022.

“Business investment could accelerate next year, helping to offset rising input costs in a more sustainable way,” Kelly wrote.

Inflation will decline from current levels but will remain high after decades of moderate price growth, the note said. But even robust price growth isn’t that bad for investors – it reflects a healthy economy, as businesses feel comfortable charging more satisfied consumers with their spending and may increase business margins. having pricing power.

Where to invest in 2022

Investors shouldn’t feel pressured into choosing between growth or value stocks, Kelly wrote, adding that “the best allocation will actually be a mix of the two.”

Target stocks in sectors whose earnings have the closest correlation to inflation-adjusted GDP, Kelly wrote, including those in the Technology, Communication services, Finance and Industrial sectors. The first two recommendations are growth-oriented sectors, and the last two are economically sensitive cyclical stocks that tend to be filled with value names.

The technology stands out for two reasons, said David Lebovitz, global market strategist at JPMAM, in an interview with Insider: The pandemic has forced companies across industries to adopt technology to survive, and the defensive nature of the industry means that it can perform well regardless of the economic environment. If growth falls flat or if the coronavirus increases in 2022, technology will be a stronghold.

Communications services are less defensive but have also benefited from the pandemic, Lebovitz said, as online content consumption skyrocketed when stay-at-home orders took effect. New habits have formed in recent years and are likely to continue into the future.

Financial services are another prominent industry for several reasons, Lebovitz said. Rising interest rates in response to above-trend inflation will improve bank profitability by allowing cheap borrowing and higher lending rates, buybacks will continue, dividends look attractive and sentiment around the sector is improving for the first time since the financial crisis.

Finally, industrialists are “all about the global growth narrative,” Lebovitz said. The continued upturn in economic activity, particularly in manufacturing, will be a positive wind for companies in this sector.


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