With 2022 right around the corner, plenty of market observers and pundits are opining on what the new year will bring for equities. High up on the laundry list of concerns are inflation and bubble speculation.
At this point, it’s clear that inflation is proving far more persistent than originally expected, but there are avenues for investors to contend with that scenario in 2022, and those options include ways to allay bubble concerns.
Consider the Goldman Sachs Innovate Equity ETF (GINN). GINN, which tracks the Solactive Innovative Global Equity Index (Net total Return, Unhedged, USD), might appear to be an example of an exchange traded fund vulnerable to bubble fears and high inflation. Upon closer examination, however, the case for the ETF in 2022 is surprisingly sturdy.
JPMorgan Asset Management expects that domestic equities will continue topping international rivals next year, but U.S. GDP growth will slow. Slower economic growth is often conducive to owning growth stocks — a group GINN is significantly exposed to.
“The coming year should see earnings act as the primary driver of returns as the US equity market continues to grow into its above-average valuation,” says JPMorgan Strategist David Kelly.
While bubble fears aren’t dying down just yet, Kelly argues that earnings growth is there to support what some say are lofty valuations.
“Strong advances in corporate earnings should justify US stocks’ seemingly rich valuations, as they did in 2021, Kelly wrote. S&P 500 earnings crushed expectations this year by rising by about 70% despite fears that rising input costs and wages would damage profit margins,” reports Business Insider.
The strategist also notes that business investment should increase next year, which could be a catalyst for a slew of GINN components because many are dependent on business-to-business (B2B) activity and technology investments.
“Business investment may accelerate next year, helping offset rising input costs in a more sustainable way,” notes Kelly.
Adding to the allure of GINN as a 2022 idea are JPMorgan Asset Management’s top sector ideas for the new year. Those include technology and communication services, which combine for 46.3% of GINN’s roster. Seven of the ETF’s top 10 holdings hail from those two sectors. The bank is also bullish on financial services and industrial equities. Those sectors combine for 13% of GINN’s lineup.
David Lebovitz, a global market strategist at JPMorgan Asset Management, sees financial services names benefiting from solid global economic growth and predicts that banks will continue elevating shareholder rewards.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.