Is 2022 Stalin’s Stock Market?
In 1930, dictator Josef Stalin’s harebrained scheme to rocket the Soviet Union’s economy from feudalism to industrialization overnight was an epic failure. So what does he do? In a brazen act of political spin that could out-rotate a zero-gravity tilt-a-whirl, Uncle Joe gave a famous speech to the Politburo entitled, “Dizzy with Success.”
If you think about it, this is an odd choice of phrase. When is “dizzy” ever associated with anything positive? “Dizzy” to my mind evokes an oncoming aneurism. Or a bold typed warning on the back of a Tylenol package. “Dizzy” is how the Lex Luthor: Drop of Doom roller coaster attacks your adrenal system.
You might describe the recent state of the stock market as “dizzy with success” (or perhaps “dizzy from excess”?). Sure, outcomes have been bomb, with the S&P up 27% in 2021. But I’m not judging anyone who feels a bit queasy. Some of us were still recovering from 2020’s volatility when stock trading was like building a Jenga tower in a bounce house.
Volatility-wise, 2022 will probably fall somewhere between '20 and '21.
Like Kong vs. Godzilla, 2022 will be defined by two leviathan economic forces: the Fed in one corner; inflation in the other. Just like two movie monsters brawling in downtown Tokyo when the Federales attempt to body slam inflation with interest rate hikes, some stuff is likely to get broke. But given the underlying girth of the US economy, the collateral damage to the stock market is likely to be muted in the longer term.
Market history guarantees nothing, but in the last eight cycles, when the Fed starts locking up the liquor (retracting economic stimulus), stock market returns have typically been positive on the year. Just don’t expect 2021-ish returns.
Oh, but just when Godzilla has defeated Kong, here comes Mothra (wages) and Gigan (supply chain disruption). Wages, just like their flying anthropod mascot, continue to soar higher, threatening corporate margins. Supply chain issues, similar to the built-in buzzsaw on Gigan’s chest, could potentially perforate profits.
That’s why everything will come down to the imminent corporate earnings reports, which are also expected to be very positive for 2022.
So here’s what. We should all channel positivity early and often this year, BUT until New Year ‘23, market turbulence could feel a lot like flying into Denver in January: not fatal, but potentially uncomfortable and nauseating. So buckle up, return your tray tables to their upright position and get ready to experience “dizzy with success” in 2022…hopefully.