Equity markets have come off record highs in 2021 to start the year lower. The Australian share market index has lost 3% in the last 5 days and is up 5.08% for the last 52 weeks. In the US, the S&P 500 has lost nearly 6% since the start of January but is up 18.02% for the last 52 weeks. Finally, the Nasdaq index is down 9.53% this calendar year and is positive 5.31% for the last 52 weeks.

The global economy is in good shape as we navigate the early part of 2022 but we all agree, the gains may not come as easily as 2021 with persistent inflation, the omicron variant, a Federal Reserve in tightening mode and a massive supply chain crisis.

Many economists agree, for now anyway, policymakers are unlikely to rock the boat and will stay their announced course of three planned rate hikes for 2022 as tapering winds down.

How do the markets look? Australian market is lower today

S&P 500 and Nasdaq are both lower over the last month

What about inflation?

Prices are still increasing and consumers are still spending!

There is an enormous amount of global pent-up demand with  US 2 trillion dollars in savings that is expected to be spent in 2022 and 2023.

Also, corporate inventories are low and capital spending is low so the second quarter of 2022, just like last year, looks likely to enjoy a growth, or rebound, in equities. Also, resource prices have rebounded strongly in 2021 and continue into 2022. This all goes well for the Australian economy and our balance of payments.

The biggest concern at the moment is the Omicron variant and what it is doing to activity around the world. Business is being continually disrupted by labour shortages and absent workers who are either showing symptoms or have the virus and are isolating. Considering the rapid spread of the virus and the high infection rate since Christmas, which will result in some welcome herd immunity, new numbers of hospitalisation and death rates are trending downwards which will give our health workers some well-earned respite. Couple that with the vaccination rate in Australia being well into the 90’s, we could be looking at continued strong growth in equities for the remainder of 2022.

OK. So what can we take from this start to the year?

Investors returned after the Christmas break hearing the news about the spread of Omicron and the havoc that ensued around the world. Everyone knows someone that has tested positive resulting in having to isolate. Hard lockdowns seem to be a thing of the past as the term “endemic” is rapidly becoming a replacement for the term “pandemic”.

There is an overwhelming sense of “I’m going to get it so I would rather get it sooner rather than later so I can get back to work or living”. This is stalling the return to full employment and consumer confidence. Once we are over this hurdle, production, shipping and rampant inflation will stabilise and we will all feel relaxed and ready to spend and travel.

Bring it on!

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