(Bloomberg) — U.S. stocks will sink nearly 20% in 2022 before ending the year little changed amid rising interest rates, according to Byron Wien’s annual list of surprises.
Strong earnings won’t be enough for equities to battle past a newly hawkish Federal Reserve and 10-year Treasury yields that hit 2.75%, according to a statement co-written by Wien, vice chairman of Blackstone Group Inc.’s private wealth solutions business, and Chief Investment Strategist Joe Zidle. The pair expect the S&P 500 to see a correction that “approaches but does not exceed 20%,” they wrote.
The S&P 500 rose 0.5% Monday to 4,790 at 2:55 p.m. in New York, while the 10-year rate jumped to 1.62%.
Wien, 88, a former Morgan Stanley strategist who’s put out his “surprises” list since 1986, is one of the most widely followed analysts on Wall Street.
Last year, Wien and Zidle predicted the S&P 500 would drop almost 20% in the first half of 2021 and then advance to 4,500. The index stumbled to start the year and fell at least 3% in both March and May, but ultimately surpassed 4,500 in late August. Its biggest drawdown was just over 5% as it rallied 27% to end the year just below 4,800.
The pair were closer with their call that U.S. economic growth would exceed 6% last year. A Bloomberg survey of economists anticipates 5.6% growth. The 10-year Treasury yield ended the year at 1.51%, 49 basis points below their forecast.
Wien calls “surprises” something the average investor would be no more than 33% likely and lands on his forecasts by assigning a greater than 50% likelihood they will happen.
Wien and Zidle expect some inflationary pressures to ease this year, particularly among commodities prices, but said that rising wages and rents will pin the Consumer Price Index higher by 4.5%. Amid those pressures, they expect the price of gold to rally 20% to a new all-time high. The two suggest that investors will seek the perceived safety and inflation hedge of the metal — and gold will reclaim its title as a haven for newly minted billionaires, even though cryptocurrencies have recently encroached that space, they wrote.
“Declines in prices of transportation and energy encourage the die-hard proponents of the view that inflation is ‘transitory,’ but persistent inflation becomes the dominant theme,” they wrote.
On a separate note, Wien and Zidle say conventional gatherings will return to pre-pandemic levels by the end of the year, and people will once again start congregating in theaters, concerts, sports arenas and other places.
(Updates prices throughout, adds gold and gatherings comments.)
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