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As the economy returns to total capacity, there are a couple of things to keep in mind.

Global economic recovery hasn’t been easy since new variants of Coronavirus, most notably, the omicron variant, have been found. High inflation is persisting in being a problem, and we are currently unaware of the moves that the Federal Reserve will make on interest rates. All these problems together will affect the stock market, but today we’re looking at things people need to keep in mind throughout 2022. 

How inflation will affect stocks

For one thing, inflation isn’t going to be a thing of the past anytime soon. Markets are currently pricing an 80% chance that the Fed will raise interest rates by the middle of 2022, and there’s almost an 87% chance of more than one rate rise by the end of the year. Because inflation is an issue, the Fed is under extreme pressure to increase the interest rates, but that only depends on how strong economic recovery is going to be throughout 2022. 

Higher interest rates mean that growth-oriented equities will rise, though not all stocks are fit to respond in the same way. Growth-oriented companies that trade with much higher valuations rather than looking at their earnings will be under much greater pressure rather than the lower-priced, discounted value stocks and energy.

Though it’s not going to happen all at once, with covid-19 being at the forefront of everyone’s minds, it will lead to a slow rise from the near-zero interest level that it is today. It will most likely be a slow start, giving markets the appropriate time to adjust. 

Slowing economic growth

For a good portion of the year 2021, the economy was focused on economic recovery after the shocking disruptions of 2020. However, they found a surge of growth while recovering. Q1 of 2021 saw GDP growth of 6.4% on an annual basis, and Q2 grew to 6.7%. However, in the second half of the year, Q3 followed with a growth rate of 2.1%.

There was also a surge in inflation, the Great Resignation, and continued demand for all goods and services. The deficit on workers and the stress resulted in pressure on prices.

Though people expect economic growth in 2022, it likely won’t be the same growth rate as in 2021. Though companies in the US are expected to grow in 2022, the pace of growth may be considerably slower. When looking at the forecasts for economic growth, the development will instead be focused on places like Europe, Southeast Asia, and South Asia. Instead of investing in the US stocks market, why not extend yourself and go abroad?

These are just a few ways that the stock market will change over the next year.