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3 Reasons Why Wall Street Bulls Will Roar in 2022

It will be prudent to invest in U.S. corporate giants with a favorable Zacks Rank to tap the market rally in 2022. Here are five of them: HD, LOW, MRVL,...

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This story originally appeared on Zacks

Wall Street successfully defeated the pandemic with astonishing performances in 2020 and 2021. Despite this achievement, a section of market participants is concerned about 2022 due to soaring inflation, the possibility of the Fed hiking interest rate and the resurgence of various coronavirus variants. Stretched valuation of U.S. stocks is another headwind.

- Zacks

Nevertheless, we have identified three reasons that may help to continue Wall Street’s rally in 2022. Consequently, it will be prudent to invest in U.S. corporate giants with a favorable Zacks Rank to tap the market rally. Here are five of them — The Home Depot Inc. HD, Emerson Electric Co. EMR, salesforce.com inc. CRM, Lowe's Companies Inc. LOW, and Marvell Technology Inc. MRVL.

Omicron Likely to Bring the End of Pandemic

Global financial markets have been suffering from severe volatility since Black Friday of 2021, following the emergence of the new coronavirus variant — Omicron — in South Africa. However, as the days progressed, it has become clearer to medical scientists and doctors that Omicron is much less severe than the previous coronavirus variants like Alpha, Delta and Delta+.

By the end of 2021, most countries reported that Omicron is quickly replacing Delta as the dominant coronavirus variant meaning both hospitalization and casualties will reduce to a great extent. Several major pharmaceutical and biotech firms have stated that the pandemic will gradually reduce to an endemic like flu virus by 2023.

Moreover, several new and modified vaccines are now quickly available to protect from the new coronavirus variant. The FDA authorization of the coronavirus treatment pill is an exemplary medical development. Medical science was not this advanced even just two years ago.

Robust U.S. Economy to Drive Stock Markets

In 2022, the largest driver of the U.S. stock markets will be the nation’s strong economic fundamentals. We expect the U.S. economy to become fully operational as the pandemic is expected to reach its peak this winter. Several major investment bankers and money managers have already started removing pandemic-related adjustments from their financial models.

A section of investors is concerned that soaring inflation, termination of monetary stimulus and possible rate hikes will be headwinds in 2022. However, a good thing for higher inflation is that consumer demand, the largest driver of the GDP, remained rock solid. Both consumer confidence and consumer sentiment index for December clearly showed the strong faith of Americans in the country’s economy.

The U.S. economy will get more upside from the government’s infrastructure spending. On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.

The infrastructure development project will be a major catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications will benefit immensely with more job creation for the economy.

Moreover, the White House has put pressure on Congress to quickly pass legislation providing $52 billion to help computer chip manufacturers and ease the shortage of the components vital to many industries.

Globally U.S. Stock Markets Are the Best  

The U.S. stock markets are the best destination for investors. During the post-recession era, overall returns of U.S. stocks were nearly four times higher than the rest of the world. After successfully recovering from the great recession, Wall Street recovered overwhelmingly from the trade-related assault of 2018.

But the real surprise came in pandemic-affected 2020 and 2021. The major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — rallied 7.3%, 16.3% and 43.6%, respectively, in 2020 and 18.7%, 26.9% and 21.4%, respectively, in 2021. In 2021, the market’s benchmark – the S&P 500 Index – recorded 70 all-time highs, second only to 1995 when the broad-market index posted 77 all-time highs.

The gigantic size of the U.S. economy has given it a clear upper hand over European and emerging markets. Furthermore, technological innovation and superiority have always been strong pillars of U.S. economic strength.   

How to Pick the Right Stocks

At this stage, several stocks look attractive for future growth. However, selecting three criteria will make the task easy. First, select U.S. corporate bigwigs (market capital > $50 billion) which have a well-established business model and globally acclaimed brand recognition.

Second, look for stocks that have strong growth potential for 2022 and have seen positive earnings estimate revisions in the past 60 days. Third, pick stocks that sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Home Depot, Emerson Electric, salesforce.com, Lowe's Companies and Marvell Technology are the five stocks that fulfil these criteria.

The chart below shows the price performance of five above-mentioned stocks in the past year.

Zacks Investment ResearchImage Source: Zacks Investment Research



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salesforce.com, inc. (CRM): Free Stock Analysis Report

 

Emerson Electric Co. (EMR): Free Stock Analysis Report

 

Lowe's Companies, Inc. (LOW): Free Stock Analysis Report

 

The Home Depot, Inc. (HD): Free Stock Analysis Report

 

Marvell Technology, Inc. (MRVL): Free Stock Analysis Report

 

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Zacks Investment Research