2022 Outlook: Would Cyclical, Value and Smaller Stocks be Better Choices?

As 2021 drew to a close, I read many articles about 2022 outlook and would pick some interesting opinions to share with you. This Tuesday, we read Morgan Stanley's report. Today, I want to share Nerberger Berman's report.

Nerberger Berman published SOLVING FOR 2022 and summarized 10 themes.

Let's get more information about equities.

They think inflationary expansion is likely to support cyclical over defensive sectors, value over growth stocks, smaller over larger companies and non-U.S. over U.S. markets.

That pattern was interrupted after Treasury yields hit their peak in March 2021, but could reassert itself as yields start to edge up again—particularly if this is accompanied by a weaker U.S. dollar.

This environment would normally bode well for emerging markets, but substantial headwinds mean we tend to favor only specific opportunities, such as leading companies in India's innovation sectors.

As we all know, there are three sources of equity returns: multiple expansion, earnings growth and compounded dividend income.

They also think that multiples appear stretched, and earnings have been growing above trend—which suggests to us that income may be more reliable over the coming year. Over the past 50 years, income has accounted for around 30% of equity total returns. Moreover, in an inflationary environment with low but rising rates, equity income is also a way to get short duration and inflation exposure into portfolios at relatively attractive valuations.