In this week's edition of Industry Focus: Financials, we take a look back at the stock market predictions Fool.com contributor Matt Frankel made in December of last year and see how he did. And then, Matt and host Jason Moser discuss his 2022 predictions and why he thinks they have a good chance of actually happening.
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This video was recorded on Dec. 13, 2021.
Jason Moser: It's Monday, December 13th. I'm your host, Jason Moser, on this week's financial show. Well, folks, 2021 is just about a wrap. For those of you who've listened for a while now, you know that one of my favorite shows to do is my partner in crime's preview of the year to come. That's right, folks. Its certified financial planner, Matt Frankel, and his count of five bold predictions for the stock market in 2022. Matt, what's going on?
Matt Frankel: Not much, it's a beautiful, but a little chilly day here in South Carolina, but pretty nice though. I see a Christmas tree behind you?
Jason Moser: Yeah.
Matt Frankel: It's festive everywhere.
Jason Moser: Let's get in the festive. It's nice. I think that weather is contagious. It's up here too. It's nice, it's a little chilly, but it's starting to feel like Christmas, which is nice. I'm excited for the holiday season. Hope everyone else out there is too. Matt, much like the Masters' kicks-off spring in Augusta, your five bold predictions to me really do tell us that the new year is upon us. I always enjoy going through this piece because I'm always learning something new from you, but I just enjoy the perspective. I like the bold nature of the predictions. As you say, they are not meant to all come true maybe, because they're bold predictions, but nevertheless, it seems like you have a good time putting this list together.
Matt Frankel: They're really bold predictions, but not so bold, that they're not going to happen. They are things that could possibly happen, but not the most likely.
Jason Moser: Well, let's talk about the plausibility then, because as we like to do, we hit Rewind and look at your 2021 predictions and how that has unfolded. About a year ago, we did another show like this where we talked about your bold predictions for 2021. As we get the show kicked off here, let's talk about those 2021 predictions and how that's gone so far.
Matt Frankel: Yeah, for whatever reason, I only made four predictions in 2021. Maybe I wanted to give myself a chance of going 50-50. Maybe that's what was going on. Here, I'll go through them one at a time. Number 1, I predicted that the economic reopening of the US will be quicker than anticipated, especially in regards to vaccine availability. Remember at first, a lot of people thought we wouldn't have widespread availability to October, it was going to take to the fall before anyone could get a vaccine. That turned out not to be the case, it turned out to be earlier than anticipated. I think it was by May in most places, where you can just walk in and get a vaccine whenever you wanted to. That made the economic reopening happen quicker than expected. A lot of people didn't think everything was going to essentially reopen by the summer last year, and it did. I call that one a success in terms of prediction.
Jason Moser: I agree.
Matt Frankel: Number 2, it's a little bit not as black and white here. Number 2, I predicted that the reopening stocks would outperform the S&P 500. Generally, that has been the case. The S&P is up by about 25 percent year to date. Most reopening stocks have had a good year. Hotel stocks have done really well, a lot of the real estate stocks, we talked about the retail basket that's done really well, but I specifically called out some stocks that happened to underperform. I specifically called out, Empire State Realty, the office REIT, which office space is still up in the air at this point, Delta Airlines is what I called out that underperformed. Reopening stocks as a group outperformed, but the ones that I called out other than Simon Property Group, which destroyed the market, haven't done so hard. I'll call that one a 50-50. I'll call that neutral.
Jason Moser: What about number 3? Because this was like you said, it was like the George Constanza of bold predictions, right?
Matt Frankel: Number 3, I was clearly wrong.
Jason Moser: Yeah, it did the opposite.
Matt Frankel: Yeah, I predicted the S&P would decline, the reason being the S&P has gotten so top-heavy with companies like Apple, Microsoft, Google, like making up so much of your index. I thought those companies would have a rough year during the reopening. I was wrong. Apple is about to hit a three trillion-dollar market cap for the first time ever. As an Apple shareholder, I'm not that mad about it, but my prediction was wrong.
Jason Moser: The emotional hedge. What about number 4?
Matt Frankel: Four was oil. I predicted oil would be over $70 a barrel by the end of the year. At the time, that was probably the boldest prediction on this list. I think oil was something in the 40s when I made that prediction. People were saying we're going to have cheap gas and cheap oil for a long time, but right now, it's just over $70. I've spent 71.50 as I'm talking.
Jason Moser: Yeah.
Matt Frankel: With a few weeks left in the year, it's too early to call that one. But so far, it's definitely headed in the right direction, especially being how low it was when I made the call. I feel good about that one.
Jason Moser: Yeah, I think it makes perfect sense. I would give it to you, but I appreciate your integrity there. We'll wait till the end of the year, but either way, I think even if it's just slightly below, I'd at least give you a half. It's what you have.
Matt Frankel: That was probably the boldest out of the original four.
Jason Moser: Well, OK. Let's go ahead and talk about 2022 here because it's December 13th. We've only got really just a handful of days here left in the year and 2022 is just going to get ready to get started here. What are your bold predictions for 2022?
Matt Frankel: These are in order from least bold to most, I guess, you would say. Number 1 is that value stocks are finally going to start to outperform growth stocks.
Jason Moser: Oh, man, I would love for you just to go ahead and tweet that out after we get done taping, and just watch all the growth investors just descend on you.
Matt Frankel: It's pretty bold. Over the past decade, growth stocks have doubled the return of value stocks as a whole. Like the Vanguard growth ETF versus the Vanguard value ETF, it's been about doubled the total return over the past decade. In most individual years, growth has outperformed. I just think that value stocks have generally a lot more to gain and the market is tiring of these high valuations.
Jason Moser: Well, it feels like we're seeing a little bit of that rotation now when you say it. That I know it's a buzzword rotation out of once like a little bit of reality the matter is, that is what happens. You see this bigger picture interest shifting from one sector of the market to another. There is a rotation out of growth into something else and it does feel like what you're saying there. Maybe there is some more interesting value.
Matt Frankel: There's a lot that can cause it. For example, when interest rates rise, it makes investors think twice about the high-value growth stocks.
Jason Moser: Right.
Matt Frankel: Things like that. I just think that the growth stocks have had their moment at this point, but I thought that last year, that's the one that I got wrong. I think this year might be finally the time for value.
Jason Moser: Well, we will obviously be paying close attention to that. What about number 2?
Matt Frankel: The Fed will raise rates quicker than expected but will have a tough time getting inflation under control.
Jason Moser: I like that. I don't like inflation, don't get me wrong, but I like the prediction.
Matt Frankel: We've already seen that the transitory inflation figures. On the day I wrote this article, the Fed announced that they were going to retire the word transitory because that was obviously wrong. But right now, even today, the predictions still call for either no rate hikes or one rate hike in 2022, between zero and one. I'm predicting that the Fed will raise interest rates at least twice in 2022, if not three times, and that it's going to find inflation a lot more difficult to control than they think. I think inflation will run over three percent for the foreseeable future.
Jason Moser: Yeah, I tend to agree with you there. I was never really on board with transitory, I think it's money that they decided they needed to retire the word from their verbiage in the meetings because I think they've finally realized it's not really the case, but that strikes me as a pretty possible scenario. What about bold prediction number 3?
Matt Frankel: I will say before I get to that, people my age and your age, we really haven't had to deal with inflation in our adult lifetimes.
Jason Moser: No, not really.
Matt Frankel: Most of the people like making these predictions, they really don't know what to think about it.
Jason Moser: Yeah. Well, it's really interesting in either, just before we get to the next prediction. Inflation is one of those things that we taught, like when we were doing that full school stuff at HQ, back when HQ was open. We even have kids come in, 5th, 6th, 7th grade, and we would teach them about inflation. We would just, "Hey, this was the price of a gallon of milk back in 1990, this is what it is today. This is what it was back in bananas, bread." You could see it really does exist and trying to explain to them that over time, if you put that $100 bill into a piggy bank, that's great, you are protecting that wealth. But the longer you leave it there, the more destructive it becomes because inflation really does eat that up.
Matt Frankel: I was born during a very inflationary time in the early 1980s. Through the '90s, it remain elevated, the 4-5 percent year range, certain years. But in the 2000s, 2010s, we really have not seen big inflation.
Jason Moser: Yeah.
Matt Frankel: It'll be interesting to see how that plays out. But with that in mind, let's get to number 3.
Jason Moser: Let's do it.
Matt Frankel: Now, we're starting to get a little bit bolder. The housing market will have another double-digit gain in 2022.
Jason Moser: Whoa, really?
Matt Frankel: That's one I've gotten the most push-back on so far surprisingly to me.
Jason Moser: Interesting.
Matt Frankel: It's like don't bet against the trend. In the third quarter, US home prices increased by 18.5 percent year-over-year just throughout the nation. That's the average. So some markets where in the 20s and 30s. Now, that's a high increase. There are things driving it though like lower mortgage rates and unfortunately high demand and low inventory of houses. Those things might sound temporary. But I think there are some permanent catalysts where they keep prices going higher. For example, they recently announced that the conforming mortgage limit's going to rise by about $100,000 next year, which makes it easier for buyers to finance homes that have appreciated in value. The FHA has announced a similar increase to the FHA lending limits. Supply is limiting home builders' ability to make new homes right now. Supply chain and labor disruptions rather. But we're seeing massive backlogs in the home builders. One of the ones that I follow Dream Finders Homes that I've talked about on this show, they announced their highest backlog ever just recently. Other home builders are seeing the same. I just feel like there's so much pent-up demand that it's going to keep the price increases going for at least another year.
Jason Moser: Yeah. It does feel like the attitude on the ground out there today is still very high demand. We had a little home down on the river here that we just decided to sell. We don't get to use it that often and so we put it on the market and I think within three days, just immediately three offers all well above what we were asking. The demand is just out there. It's the middle of December. So it feels like that is going to bleed into 2022 actually like that. I like that call too. What about number 4? Because this was really a big theme of 2021. Leaving some investors out there who can't see the forest for the trees, a little bit salty. But what about number 4 here?
Matt Frankel: Yes, I'm getting to my bolder predictions now. Number 4 is that SPACs will make a comeback. I'm not saying that we're going to see early 2021 happen again. I think one of the shows we did, there was something like 12 SPACs that went public that day.
Jason Moser: Probably. We did that all series. We did four shows, just a series of SPACs.
Matt Frankel: I think each show I gave the statistics on how many went public that week, and it was like in the 40s and 50s certainty. I don't think we're going to see that again. But what I do think is we are going to see a wave of more prominent companies go public by SPAC again. We're going to see some more high-profile sponsors decide to get back into the SPAC game. Some of these companies that were issuing more than two or three SPACs or whatever in 2021, Virgin, for example, to have pumped the brakes and haven't put out any new blank check companies. Virgin's took public 23, they just announced their second one it's taken public, the Grove Collaborative. It's organic foods company, I believe.
Jason Moser: Yeah.
Matt Frankel: But they hadn't put out once since the second one, which was in the middle of the year. I could see these companies that are finally starting to get their stacks work through the process getting back into it and I think, early 2022, you're not necessarily going to see what we saw last year, but you're going to see a resurgence in the SPAC boom.
Jason Moser: Yeah. We just saw Harley-Davidson. They are going to spin out their electric bike business LiveWire. That's going to go public in 2022 via SPAC. I think you're right. I think we're going to continue to see it. Maybe not the same headline news that we saw through 2021, but it does give businesses a chance to go public earlier, and not to say that every one of those businesses is a good one, but there are some good businesses that come from this and maybe met in mind. Don't throw the baby out with the bathwater as they say. Matt, I guess, brings us to the final and fifth bold prediction for 2022. I got to say this is another bold one. You're going to get some push back, I'm sure.
Matt Frankel: If you thought the growth stock thing was going to make people mad on Twitter, number 5 is the cryptocurrencies are going to have a rough year in 2022.
Jason Moser: What makes you say that?
Matt Frankel: Along the same lines as my thoughts about growth stocks is that the appetite for speculation is just running out. Higher interest rates, things like that. It's going to cause investors to pump the brakes on speculation. It's going to trickle down to the cryptocurrency markets, because at the end of the day, cryptocurrencies and growth stocks are more linked than people like to think in terms of who invested them. You're going to see a lot of investors start to pump the brakes. Since I wrote this article, Bitcoin's already down by like 10 percent. Technically, the clock starts in January.
Jason Moser: Somebody leaked the info. Someone leaked our show notes.
Matt Frankel: Tim just said it was my fault. But since the beginning of 2020, pre-pandemic, Bitcoin is up by about 700 percent, Ethereum is up by 3,400 percent since the beginning of 2020. That was already after a big multiyear rally. Look at a 5,6 year chart of Bitcoin, you'll be kicking yourself for not buying it. But I think that's going to start to run out. I think it's going to take a step backward. We got a surge of institutional interest in 2021. If I'm right and growth stocks have a rough year, you're also going to see a lot of institutions start to pump the brakes on crypto. I'm predicting a decline of 20 percent or more. I put a number on it, 20 percent or more in 2022.
Jason Moser: Well, you've quantified it. Crypto is just a tricky one. You're right. I think the risk profile is very similar, folks who are part of that growth movement. Very similar risk profile for those who invested in this cryptocurrency. It will be interesting to see maybe as 2022 unfolds if we see the tail ends of any stimulus and the impact that's had on helping people pad their bank accounts start to get people back to work and those accounts become a little bit more depleted if maybe that tolerance for risk doesn't start to bait at some point in 2022. For something you just don't see as much about crypto and meme stocks and things like that, but it'll certainly be stuff worth following for sure. But Matt, hey, listen this is always a lot of fun. I think you know I'm a big fan of these lists that you publish and I appreciate you taking the time to sit in and review your 2021 predictions and preview the boldness of your 2022 predictions.
Matt Frankel: Of course, always fun to be here and go through all these things with you. Hopefully I get at least get two out of the five.
Jason Moser: Oh, well we're going to keep track and we will come back to it I promise. Folks, that's going to do it for us this week. Remember, you can always reach out to us on Twitter at MF, Industry Focus or drop us an email at [email protected]. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against. Don't buy yourself stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us, for Matt Frankel, I'm Jason Moser. Thanks for listening and we'll see you next week.
