SPX slides again on Wednesday: ‘we remain constructive for 2022’

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on Jan 19, 2022
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  • The benchmark S&P 500 index is now down nearly 5.0% for the year.
  • Sheldon sees several reasons for the market to move back up later in 2022.
  • He says the U.S. Federal Reserve is unlikely to raise rates by 50-bps.

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The benchmark S&P 500 index is now down nearly 5.0% for the year, but RDM Financial’s Michael Sheldon says he remains constructive for 2022 as a whole.

Sheldon revealed his outlook on CNBC’s ‘Worldwide Exchange’

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According to Sheldon, the market might struggle in the near term, but there are several catalysts for an eventual move back up. This morning on CNBC’s “Worldwide Exchange”, he said:

The consumer in a healthy position right now, manufacturing sector is doing well, new orders continue to rise. We see about 8.0% to 10% earnings per share growth, and over longer time periods; stocks tend to follow the direction of corporate profits. So, those are the positives.

On the flip side, factors like record levels of inflation, upcoming rate hikes, and the fast-spreading Omicron variant of the Coronavirus are expected to make it difficult for the market to rally in the short term, he added.

U.S. Fed is unlikely to raise rates by 50-bps

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Earlier this week, billionaire investor Bill Ackman called for a 50-bps increase in the interest rate to combat inflation, but Sheldon says it’s unlikely that the U.S. Federal Reserve will deliver such a shock.

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If you listen to Powell over the pasts couple of years, he does not like to surprise the market in a major way. So, I think he’s likely to take a prudent approach, which is why a 50-bps increase is very unlikely unless inflation stays above 6.0% for longer than expected.

Sheldon expects Republicans to make “serious gains” in both House and the Senate in the midterm elections scheduled for early November, which, he said, could be another positive for the market. A day earlier, Cerity Partners’ Jim Lebenthal said SPX might be on its way for a 10% correction.

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