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UBS:Key observations from 2021 and outlook for 2022

ubs:-Πρωταθλήτρια-της-ανάπτυξης-η-Ελλάδα-–-Οι-τέσσερις-παράγοντες-που-την-οδηγούν-στην-κορυφή

Hawkish Fed still leaves opportunities in fixed income
The minutes of Federal Reserve meetings are often a non-event for
markets. But those of the 14-15 December FOMC gathering were an
exception, providing a clear indication that the central bank is on track
to hike rates sooner than investors were assuming. Notably, the minutes
pointed to a need “to address elevated inflation pressures.” Such concerns
are likely to have been accentuated by the later release of the personal
consumption expenditure price index, one of the Fed’s favorite inflation
measures, which came in at 5.7% year-on-year for November, the fastest
rise in almost four decades. In addition, some policymakers indicated
that the US economy may be not far away from meeting the Fed’s goal
of maximum employment. Despite a disappointing rate of job creation
for December, unemployment fell 0.3 percentage points to 3.9%, only
marginally above the 50-year low reached prior to the pandemic. A rate
hike is now possible as early as March followed by two more in June and
September and two each in 2023 and 2024, in our view. This underlines
our least preferred view on US Treasuries—10-year yields rose to 1.77% last
week, up around 24 basis points since the end of 2021. However, we still
see opportunities in fixed income, including in senior loans, which benefit
from a floating rate structure.
Takeaway: The Fed is on track to scale back monetary accommodation in

  1. But we expect officials to remain cautious about over-tightening.
    With yields and credit spreads low by historical standards, we see the
    best opportunities for investors to boost income in unconventional
    markets, from private and synthetic credit to active strategies, structured
    investments, and dividend-paying stocks. For more on unconventional
    sources of yield, click here.
    Neither omicron nor Fed likely to derail equity rally
    Stocks have so far reacted more to worries over Fed tightening than
    to record infection rates of COVID-19, which are now about 75%
    higher globally than the 2021 peak as omicron spreads. We think this
    is appropriate: The link between infections and hospitalizations or
    fatalities continues to weaken. But we don’t see either omicron or the Fed
    undermining growth or ending the equity rally. Stocks have continued to
    perform well, despite the gradually more hawkish tone of the Fed since last

summer. Also, historically, stocks performed well in the months leading up
to the first rate hike of a cycle. Since 1983, the S&P 500 has risen 5.3% on
average in the three months before the first Fed rate hike. In addition, the
normalization of Fed policy shouldn’t dent the outlook for corporate profit
growth, which is being supported by above trend growth buoyed by strong
consumer spending and still-easy access to capital. That said, last week’s
setback for stocks is consistent with our expectation of higher volatility in
2022, and we expect less support from a Fed “put” going forward. This
adds to the incentive for investors to build well-diversified portfolios, both
geographically and across asset classes, and to balance a pro-cyclical stance
with exposure to more defensive sectors.
Takeaway: The Fed minutes don’t alter our base case expectation that
equities will continue to move higher, and for the more cyclical markets
to be the relative beneficiaries of above-trend US and global growth. Click
here for more on buying winners from global growth. Healthcare can be an
attractive way to balance this with defensive exposure.
Look beyond megacaps for tech exposure
Growth sectors, notably tech, were the hardest hit by worries over rising US
yields. The Nasdaq fell 3.3% versus 1.9% for the S&P 500 after the FOMC
minutes were released. Rising yields present a headwind to many parts of
the tech sector. But after a year in which gains were highly concentrated
in the mega-caps—with the five largest stocks accounting for 8.8% of the
rise in S&P 500, more than twice the historical average—we see a strong
case for diversification within tech. In our view, the most attractive returns
will come from firms that are exposed to AI, Big Data, and Cybersecurity.
These themes are supported by the secular trends of automation, analytics
and security, key strategic focus areas for many businesses. We expect this
theme to generate 10% revenue growth over 2020–25 on average—higher
than our estimate for the broader tech sector during this period (mid- to
high-single-digit growth per year)—and earnings per share growth of 16%
per year on average.

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