Doug Famigletti, Portfolio Manager
Michael Jamison, Portfolio Manager
John Carey, Portfolio Manager
February 7, 2022
At the beginning of each year, we publish a list of the top 5 themes that we are closely monitoring as it pertains to identifying opportunities in our client portfolios. The following are our themes for 2022. Please keep in mind, these are not predictions, and these are not universal recommendations. These are simply investment themes that we at Griffin Asset Management believe will impact our investment decisions during the year.
Slowdown in U.S. and global economic growth
The Fed’s proposed rate hikes, supply chain bottlenecks, lingering Covid-related shutdowns, worker shortages and inflation may all contribute to slower economic growth both in the United States and globally. The World Economic Report on January 25, 2022 has forecasted U.S. economic growth at 4% and global economic growth slightly higher at 4.4%.
The Financials sector is in a strong position to outperform
The sector is currently among the most well-positioned in the U.S. economy. Financials historically have strong performance in a rising rate environment. Additionally, financial institutions are undergoing technological transformations that are allowing them to improve operational efficiencies and meet consumer demands. 2021 was a year that saw the return of robust M&A activity to the sector and the trend of industry consolidation may remain at an elevated level this year.
Earnings growth will decelerate but remain positive for the year
Rising labor and raw material costs are putting pressure on corporate profit margins which, in turn, is impacting earnings estimates. According to CNBC, first quarter earnings estimates for the S&P 500 declined from 7.5% growth on January 1 to 7.0% on January 25. Although it may not seem like much, investors should consider that earnings estimates had risen all of 2021 and will likely continue to decelerate as inflation persists.
2022 momentum to favor value over growth
Although value had some great moments in 2021, growth still outpaced for the year. In 2022, however, there appear to be forces that are working in value’s favor. Value stocks tend to outperform in both inflationary and rising rate environments. Historically, post recessionary periods tend to favor value stocks. According to Bank of America, value has lead growth after all 14 economic recessions that have occurred since 1929.
Dividend paying stocks will account for a larger percentage of the S&P 500 total return in 2022
According to Hartford Funds, dividend income’s contribution to the total return of the S&P 500 Index averaged 41% from 1930–2020. During periods of high inflation, stocks that increase their dividends have a strong history of outperforming the broader market. Additionally, investors tend to see the regular, scheduled payments of dividend-paying stocks as a way to counter a volatile market.