Cash is king? Citi survey: U.S. stocks will hardly rise next year, technology stocks will "break"

According to Citi's quarterly survey, most fund managers still expect the Standard & Poor's 500 Index to rise next year, but the increase is only about 2%. Respondents have a weighted average target value of 4799 points for the S&P 500 at the end of 2022, while Citi’s target value is 4900 points. The first issue that investors are most worried about next year is whether the Fed will make a decision error, followed by inflation.

Strategist Scott Cront and his team wrote in a report:

"Interestingly, since the launch of the survey in September, we have not seen much change in earnings growth expectations, because institutional investors’ expectations for 2022 earnings per share growth in December were 6.5%, compared to September’s expectations. 6.3%. We expect earnings per share to increase by 8% in 2022."

According to relevant data , fund managers have put more funds into the market, and cash only accounts for 6.3% of their assets under management, which is lower than the 7.6% in the previous survey and 8.2% at the beginning of the year.

In contrast, Dan Niles, founder and portfolio manager of Satori Funds, in an interview on Thursday, advised investors to keep their heads up until 2022 , and pointed out that given its pessimistic outlook on the financial market, cash may be the best. Choose . Niles said: "People underestimate the value of cash."

Although, Niles admits that "99% of the time" cash is a bad investment choice, especially in the context of high inflation. But he believes that possible declines in major financial markets will make cash the best choice for investment.

Taking into account the overvaluation of stocks and the possibility of the Federal Reserve raising interest rates , Niles expects the S&P 500 index and the US Treasury bond market to decline in 2022. Regarding the recent stock market rebound, Niles believes that it is more driven by Fed policy and government spending than fundamental factors. This momentum is difficult to maintain when the stimulus plan may end.

At the beginning of December, Niles had already published his expectations for next year. He also said that cash is his favorite choice, and predicted that the Fed will be forced to raise interest rates to offset inflationary pressures, which will push the stock market away from high valuations.

Specific to the US stocks sector, in the September quarterly survey, information technology (IT) was considered the best performing industry, and respondents now expect the industry to perform poorly. Citi’s Cront said:

"Investors’ preference for the IT industry has declined. This may be due to investors’ consideration of the valuation risks brought about by rising interest rates. This view is consistent with our current practice of reducing IT industry stocks. Industrial stocks, financial stocks and energy Stocks are favored by some investors because they help ease the pressure on the supply chain and can be used as stocks of choice when interest rates rise.

Investors still don't like holding stocks in sectors such as utilities, consumer goods and real estate . The survey shows that they prefer financial stocks, industrial stocks, healthcare stocks and consumer discretionary stocks, and these four sectors are exactly what we recommend to increase their holdings. "

Although Niles of Satori Fund expects the stock market to fall next year, he also proposed stocks that he believes to be worth investing in next year, including General Motors, Google, Meta, and media and telecommunications service sectors that have recently been unpopular value stocks.

Niles also said that it is bearish on newly listed electric car startups because these companies have uncertain earnings prospects, but their valuations are ridiculously high.

In addition , the market’s expectations for WTI crude oil prices are polarized . One party believes that by the end of 2022, WTI crude oil prices will eventually fall between US$65-70/barrel, while the other side believes that the price will exceed US$80 by then. /bucket.

It is worth noting that this year is the first time since 2016, the energy sector outperformed the US stock market year .

The performance of the S&P 500 Energy Index so far this year is 21 percentage points higher than that of the S&P 500 Index. The best-performing stock, Devon Energy, has gained 167%. In contrast, the performance of the S&P 500 Index, which excludes oil and gas companies to measure the broader market, is 22% worse than the S&P 500 Energy Index.

These data prove to some extent that investing in energy indexes is the right choice. Rafi Tahmazian, Partner and Senior Portfolio Manager of Canoe Financial, said:

"The willingness to invest in energy funds is very strong. These funds are currently like money printing machines."

As of the end of November, Tahmazian's energy producer-based fund has risen 91.2% this year.