Ten Predictions for 2022

In 2021, the global pandemic never strayed far from the spotlight, beginning with vaccines that drove a wide-scale reopening of economies, and ending with the omicron variant taking case counts to record levels. In this roller-coaster of a year, we managed to get more right than wrong with our annual predictions – notably picking the winners of both the Super Bowl and Best Picture at the Academy Awards alongside some useful projections for how the economy would evolve.

We know we cannot predict everything – acknowledging this serves us well – and we recommend that investors hedge when they have less than a 50% chance of being correct and invest where they have a clear, repeatable edge. For considerations outside of the investment process, our predictions for 2022 are listed below. We wish you great health, happiness, and luck in the year ahead.

1. Economic growth will moderate amidst persistently above-target inflation.
   Growth rates in the US will subside from 2021’s bounce-back highs while remaining above their long-term trend as fiscal spending gains traction. The Federal Reserve's expected interest rate hikes, however, will only have a modest impact on inflation which will persist stubbornly above its 2% annual target.
2. Speculative asset bubbles will deflate.
   In recent months we have seen the prices of SPACs, pandemic stocks, and NFTs come off their highs, but bubble-prone speculative assets still have plenty of room to fall. With the impact of stimulus checks waning and more parts of the economy now open for spending, money will come out of the frothiest areas where levels of risk are the highest.
3. Apple, not Meta, will lead us into the metaverse.
   Despite Facebook’s rebranding to Meta and upcoming Project Cambria release, it will be Apple’s push into virtual reality that succeeds at reaching consumers. The process is already underway for augmented reality in existing devices like AirPods with spatial audio that could be integrated into a full virtual experience. And when it comes to product design, Apple’s expertise gives it a chance at making virtual reality look cool – something that companies producing awkward sets of VR goggles aren’t close to yet
4. Shadow inflation will run rampant as companies stealthily pass on higher costs to consumers.
   After a year when traditional inflation measures like the Consumer Price Index (CPI) saw their highest increases in decades, it will be less conspicuous declines in quality that hit hardest in 2021. A lack of waitstaff at restaurants, cleanliness at hotels, and long checkout lines at stores are among the ways people will pay in decreased service quality even if they don’t see a difference in headline prices.
5. The number of decentralized autonomous organizations (DAOs) will proliferate.
   In November, ConstitutionDAO made waves among crypto investors by raising more than $40 million to buy a rare copy of the US Constitution. While this effort ultimately failed, the model of creating communities on the blockchain to pursue specific goals – from charitable endeavors to film finance – will grow extensively in 2022.
6. The Dallas Cowboys will win their first Super Bowl since their mid-90s championship run.
   After correctly predicting the Bucs’ championship last year, it’s tempting to call for a repeat. Heading into this year’s playoffs, however, the Cowboys are the team with the league’s most complete offense. Though their path to the Super Bowl may face a challenge going through top- seeded Green Bay, this would be a homecoming game for coach Mike McCarthy, and Dallas is well-positioned to make a run as America’s team once again.
7. Economic linkages between the US and China will come under pressure.
   Policy developments over trade, technology, and foreign investment are already reshaping how the US and Chinese economies interact, and China’s model of dual circulation – highlighted in last year’s predictions – supports their disentanglement. As this process accelerates, there will be knock-on effects, both directly through supply chains and capital flows, and indirectly from a lack of mutual incentives bringing these powers together to address global issues. In 2022 and beyond, the changing nature of this relationship will be a driving force in financial markets.
8. Environmental, Social, and Governance (ESG) investing will become increasingly active.
   Engine No. 1 installing three directors on ExxonMobil’s board made headlines in 2021 and showed that instead of avoiding certain companies, taking an active role in their direction can be more impactful. Pursuing ESG principles via proxy voting has the potential to make a real difference in how firms operate, and new strategies will launch to deploy this model this year.
9. The housing market will continue to boom despite higher interest rates.
   After a year when US home prices broke records with 12-month gains of nearly 20% through August, one might expect a pullback as the Federal Reserve raises interest rates. The current housing market, however, faces a fundamental mismatch between growing demographic demand and supply constraints, two well-established dynamics that are not going away. This situation will support higher prices for houses amidst new headwinds to their affordability.
10. The pandemic will transition to an endemic phase.
    We generally would avoid making a prediction about something as unpredictable as a virus, but after the events of the past two years this list would be incomplete without one. And while the surge in infections from omicron caught many by surprise, its rapid spread may combine with vaccines and boosters to create a new level of immunity in the population that leads to the virus’ impact becoming more stable. Taking into account all the uncertainties associated with potential new variants, the virus entering an endemic phase would mark a critical transition from the pandemic in 2022.

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