Grant Bowers, Portfolio Manager, Franklin Equity Group provides his 2022 outlook, including the impact of COVID-19, monetary policy changes and inflationary pressures on equity markets and where the investment opportunities lie.
“We expect the US economic recovery to remain on track for the remainder of the year and into 2022. While the current economic backdrop appears robust, supported by healthy consumer spending and strong business balance sheets, we acknowledge that 2022 might bring an increase in volatility as investors reflect on the duration of higher inflation rates, fiscal stimulus and asset purchase tapering by the US Federal Reserve. We continue to see opportunities to invest in what we consider high-quality businesses with sustainable growth drivers that are not reflected in current valuations. Many of these investments are levered to strong secular growth themes that we believe will deliver consistent performance throughout the market cycle.
“Many of our investments remain focused on the ongoing digital transformation of the global economy. This move from an analog-based world to a digital one is allowing companies to better understand customers, improve business processes, increase productivity and lower costs. We see an investment opportunity that will touch every sector in the global economy and is still in its early days.
“The United States appears to be moving into the final stage of the pandemic reopening process—workers returning to offices, schools reopening and spending for travel and services on the rise. Businesses are replenishing depleted inventories to meet rising global demand and, therefore, capital expenditure trends should remain strong. Looking ahead to 2022 and beyond, we will be paying close attention to how monetary policy changes, inflationary pressures and the global supply chain react to the strong growth we expect to see next year. These headwinds may weigh on investors’ minds, but we expect many of the impacts to be transitory and moderate in the second half of 2022, as supply demand imbalances moderate.
“We continue to view the US economy as strong and see the US equity market as an attractive place to invest in 2022. While valuations are elevated in some pockets of the market, our focus is on finding quality companies with robust competitive advantages, strong balance sheets and high free cash flows that can weather an economic downturn or increased market and economic volatility. We encourage investors to take a long-term view and see volatility as an opportunity to take advantage of the good prices of excellent companies set to benefit from multi-year secular growth trends. We remain convicted in our growth positioning as we seek to identify companies that we believe can be the future leaders within the US economy and the overall market.”