Personal Wealth Management / Market Analysis

Ken Fisher Provides His 2022 Stock Market Forecast

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses why 2022 may be a strong year for stocks despite a myriad of investor concerns. Ken believes markets will start 2022 rocky and slow, only to accelerate as the year goes on. Ken explains that the second year of a US president’s term usually begins in a slog, as investor anxiety about midterm elections drives short-term market volatility.

However, in the latter half of the year, Ken anticipates a pre-priced outcome of political gridlock. Markets love gridlock because it lowers legislative risk and investor uncertainty, which is bullish for stocks. Even with an apprehensive start to the first half of the year, Ken expects a strong fourth quarter to deliver good returns for the year. While few investors believe 2022 will be a big year for stocks, Ken says markets tend to do what few expect, and those who let early year volatility keep them out of stocks may be left behind.

Transcript

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Ken Fisher: 2022 seems in a lot of ways to me like an archetypal second year of a president's term. If you heard me a year ago, I told you that first years of president's terms tend to be negative about half the time and when they're not negative, they tend to be up pretty big. That worked pretty well in 2021 when it was up pretty big, which is what we told you it would be.

Ken Fisher: Second years tend to be a little more often positive, but only a little more positive, about 57% of history and up a little bit less than first years and when not up negative. That bifurcated negative or up a lot tends to make it so that if you're wrong with a forecast, you're pretty darn wrong. Markets tend to do what few expect. Markets tend to do what, in hindsight appears to be rational, but pretty much no one expected. Right now a big year is something that no one expects. There's quite a few forecasters that forecast up a little, others that forecast down a little. You can't find hardly anybody that thinks the market is going to be up much.

Ken Fisher: The inherent nature of second years is when they're not negative, they're quite a lot up, up, and that up, up, up tends to come in the back of the year, not the beginning of the year. The first half of a second year tends to make those who expect not much feel confirmed in their views, feel they were right, and they dig themselves in. The history of the first half plus of second years of President's terms tend to be very what I call sloggy.

Ken Fisher: A lot of sidewaysness, a lot of wiggle, a stock pickers market, not a market with a lot of direction. And that is driven by the acrimony as we start moving into the midterm elections in America. Confirmation bias is really, really strong. And confirmation bias is probably stronger about things in politics than almost anything I know. Confirmation bias being that tendency that we all have to see things that confirm that we were right in our prior views and to not see or to dismiss totally things that might indicate we were wrong in our prior views.

Ken Fisher: And so, when it comes to politics, whether on the left of the ideological spectrum or the right, people tend to have the view that those other guys, they're the wrong ones, they're the bad ones, they don't know, they're terrible, they're dishonest, they lie. They, they, they, they, and the acrimony in a midterm year tends to build that, tends to promote that sloggy first half of a year. And then markets, which pre-price all widely known information, tend to pre-price the outcome of a second year, which is relative or absolute gridlock. This year, it's going to be almost certainly absolute gridlock, hardcore gridlock. And markets love that because it brings in the third-year political calmness. And markets love political calmness. I don't care if you're on the left or the right of the ideological spectrum, whatever you would like to do in abundance, if you could do it in abundance, would scare the heck out of the market in the short term.

Ken Fisher: Markets love political calmness, and that's what midterms tend to render and will in particular this time when the margins in Congress are thinner than they've been since the 19th century in both chambers. That being the case, it takes almost nothing to create that absolute gridlock compared to a normal midterm. The forces are all in place for that now. We're going to get political calmness. The markets will pre-price that in the back half of the year and principally the fourth quarter. The history of fourth quarters in second years, of president's terms being positive is 83%, way over normal positiveness of the stock market. And that tends to roll into the perception of political calmness in the third year of a president's term.

Ken Fisher: I just want to say really simply, we haven't had a third year of a president's term negative since 1939 because of that political calmness. And in that, I want you to see that some of that feature gets front end loaded into the fourth quarter of the second year.

Ken Fisher: So, I expect a strong fourth quarter of a second year that makes the whole year nicely positive. The first half of the year maybe plus a little into the summer, being pretty sloggy, not down pretty sloggy, not a lot of high expectation you should have as those who don't expect much feel more and more that they're right. They get themselves stuck in that and then the market takes off and runs away and leaves them behind. That's the world I envision, which then ripples over to pull foreign stocks with it, because tends to be that in that second year. With all of the acrimony, people look to America increasingly as the year progresses, to see what is it that America does or doesn't do that will impact them, and that tends to build caution overseas as well.

Ken Fisher: So, with that, that's kind of my view about how 2022 should progress. Thank you so much for listening to me.

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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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