One of the larger investment houses sets out its ideas for the big macro and market themes for the coming 12 months.

Predictions are hard, especially about the future, as legendary baseball figure Yogi Berra was quoted as saying. But that doesn’t mean that economists and wealth strategists aren’t going to examine the crystal ball. 

As 2022 starts, Kristina Hooper, chief global market strategist at Invesco, gives 10 predictions for this year. Here they are: 

1, The Omicron variant will be a negative force in the short run, exacerbating supply chain disruptions and aggravating inflation. Within a few months, however, Omicron is likely to be a positive force if it remains as mild as we have seen thus far. Because it is highly contagious, it appears to be crowding out the more dangerous Delta variant.

2, I expect emerging markets stocks to have a very bumpy start in 2022, given the spread of the Omicron variant. However, I believe that for the full year, emerging markets equities are likely to outperform developed market equities, including US equities. I expect emerging markets growth to accelerate while US and European economic growth decelerates to more normal levels. Unlike 2021, Chinese equities are likely to help drive emerging market equities higher in 2022, helped by a re-acceleration of China’s economic growth, thanks to monetary and fiscal stimulus.

3, I expect at least one significant geopolitical crisis in 2022 (Russia invading Ukraine is at the top of the list of possibilities) but believe that markets will shrug it off within days after it occurs.

4, There is likely to be a US stock market correction in the first half of 2022, but I expect a relatively swift recovery. It’s been so long since we have had a sizeable correction that the odds of one have grown — and increasing the odds is the fact that the Federal Reserve is starting to normalise monetary policy in the first half of 2022 and may start to hike rates.

5, Global stock and bond market volatility should increase as the Fed begins to normalise monetary policy. But I believe that the Fed has the potential to positively surprise with less tightening than markets currently expect.

6, I do not believe that the Fed will hike rates in March. It’s just too soon, especially given the spread of the Omicron variant. However, the Fed seems eager to start reducing its balance sheet.

7, I expect cyclical stocks to outperform defensive and secular growth stocks in the US early in 2022 in anticipation of a post-Omicron recovery, but that for the full year, growth will outperform.

8, US inflation is likely to rise further, especially given the spread of the Omicron variant and its potential impact on supply chains and labour, but it should peak by mid-2022 and then slowly decelerate.

9, The 10-year US Treasury yield will end 2022 higher than it is now, in my view, as the Fed begins to normalise monetary policy.

10, Finally, I expect to see even more interest in environmental, social, and governance (ESG) investing in 2022, driven in part by a dramatic acceleration in electric vehicle adoption in the US, Europe, and China.