Quote:
Originally Posted by austinp
Another great year in the books! 20%+! What outlook does everyone have for 2022?
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Few of my predications for the year, not financial advice, do your own DD, don't trust someone on a rolex forum etc etc
1.
Best Sectors: Biotech and Financials
Why:
A: Biotech is an easy choice here based on sheer sector rotation. XBI was HAMMERED in 2021 down 15%. Big Pharma has RECORD amount of cash to leverage for bolt on acquisitions and more importantly they have massive patent expirations to deal with
https://www.fiercepharma.com/special...-coming-decade. M&A this year in biotech is going to be tremendous and bring up the broader based sector, you had multiple BP's in 2021 announce they are going on a spending spree for bolt on acquisitions and increasing buyback/dividends. Personally I think there is better money to be made in the small cap bio space, many are down 20-30% in Q4 alone, trading often below FDA approval levels. I like AUPH (obviously), MYOV, ALBO (hidden small gem) and TGTX. Additionally take a look at LABU, it is 3x leverage XBI, wait for a base to form and should the sector rotate, this will be off to the races. Look at the last decade, anytime the sector rotated out of XBI for a negative year, the following year returns were off the charts.
B: Financials will be a benefactor as the FED raises the FED funds rates as their loans will be more profitable, easy hedge against rising rates. I like Citi here that is at a severe dislocation (LEAPS are cheap) and JPM for a higher quality bank.
2. FED Raises Rates 2X this year.
They will raise in 25bp increments, this is ultimately meaningless in the grand scheme of the FED funds rate. I am not sure why people believe this will be that impactful to the stock market. Look at the Bank of England, they raised rates in Dec and did not see any meaningful impact to their market. The other VERY important thing to note about the FED, is they ONLY control interbank lending rates. That is 0-3 years of the yield curve. Look at the yield curve below the last two periods the FED raised the FED funds rate. You saw the biggest impact in yields on the short end while the intermediate yield curve flattened. Why? Because the intermediate is controlled by supply and demand, we are one of the highest Developed Market 10yr bonds in the world (Germany still negative) and thus you will continue to have heightened foreign interest. I do believe yields will creep higher across the curve but it is a mistake to tighten duration in bonds as the FED raises FED funds rate. If you are in TBT (full disclosure I am long here), I think this will still pay off this year as the 10yr realistically should get to ~2%. If you want to hedge your fixed income portfolio against rising rates, buy midgrade bonds and or CPI swap funds, both will dampen the impact of rising rates.
3. FED tapering wont have much of an impact
This is another big concern of the market which I think is overblown. Even look at rates when they began tapering, did not see much movement, I believe rates even went down that down. More importantly, you have over $800B of treasury supply being taken off the books this year, that will offset the reduction of treasury buying from the FED in the first half of this year.
4. Security Selection has never been more important
Finding the right securities will generate higher returns this year than broadbased index buying. Megacap tech has propped up the indexes in 2021, that creates opportunities in smaller cap stocks that were unnecessarily sold off in Q4 either do to tax loss selling, index based selling and or omicron selling.
5. Runnerup Sectors
Personally believe we will continue to see a runup in chips, more so on the auto side (I like MRVL here) and then travel recovery plays should pan out well assuming there isn't another variant (fingers crossed SABR).
6. Buy LEAP Puts and roll calls
There are several high growth and VERY high P/S stocks that the market will punish in a rising rate environment. You certainly could also buy SPY puts to hedge your long portfolio. Personally I pick 4 or 5 overvalued stocks and I buy LEAP puts on them. When we do see a market pullback, the puts will gain in value and it is an easy trade to take those gains then rotate that money into calls on oversold stocks. Efficient way to have an effective hedge in your portfolio and profit in a down market, especially in a year where we are expecting downside volatility. I have also been rolling a few 2023 calls to 2024 to buy more time.