Omicron’s Economic Effect, Wages Going Up, 2022 Corporate Earnings
Happy New Year! Now is the perfect time for investors to start thinking about possible investment themes for 2022. In today’s Steady Investor, we take look at three to consider:
- Omicron’s effect on the U.S. and global economy
- Rising wages
- Corporate earnings in 2022
Will Omicron Slow the U.S. and Global Economy? Reports of rapidly rising Omicron (Covid-19) cases have gone global. Here in the U.S., the rapid spread in some parts of the country has caused consumers to pull back and some employees to skip work, either to avoid getting infected or to avoid spreading to others. Some of the retrenchment is starting to appear in the economic data – the number of seated diners at restaurants was down 15% in the week ended December 22 (compared to the same period in 2019), and U.S. hotel occupancy was at a very low 53.8% for the week ended December 18. There have also been increasing reports of shows being canceled, classes shifting online, and offices reversing reopening plans. Taken together, these changes in consumer and worker behaviors appear likely to impact Q4 2021 and Q1 2022 GDP growth figures. The latest estimate for Q4 shows the U.S. economy expanding at approximately 7.6%, but that figure is likely to come down, and Q1 2022 estimates are likely to be cut in half in the coming weeks. Even still, each iteration of a pandemic wave has had a smaller impact on overall economic growth, and in our view, the impact of the Omicron variant is likely to be smaller than the impact of the Delta variant.1
Retiring Soon? Get Our Retiree Checklist!
The new year brings a fresh start. As investors are still uncertain about the market performance within the next few months, we understand how difficult it can be to make future financial decisions – especially for those who are trying to build their retirement portfolio.
That doesn’t mean you can’t make the most of this new phase in your life!
To help you do this, we are offering readers our free guide that provides a step-by-step blueprint to potentially help you build a sound retirement portfolio. This guide offers you a checklist of the most important financial, tax, and investment considerations for new retirees, with detailed explanations to help you prepare for this new stage in your life.
If you have $500,000 or more to invest, get our free guide today!
Wages Move Higher, Providing a Headwind to Inflationary Effects – Inflation has been the big story in 2021, but we think it is important to also acknowledge a countervailing force – rising wages – that could offset the impact of rising prices. Indeed, U.S. professionals in 2021 have experienced the biggest compensation increase in almost 20 years, according to the Department of Labor. Inflation, of course, is also running its hottest in close to 40 years, so the ‘real’ impact of rising wages is muted relative to rising everyday expenses. Looking ahead, however, there is a distinct possibility that inflation pressures could fade while wages remain at newer, higher levels. For private-sector workers in aggregate, wages grew at a 4.6% year-over-year pace in Q3 2021, with the biggest increases landing in service sector occupations like retail and hospitality. For higher-skilled workers in management, business, and financial occupations, wages rose by a lesser 3.9% over the same period, but this increase still marks the fastest pace of rising wages since 2003 for this group. In our view, there is a reasonably good chance that wages will keep rising in 2022 as inflation moderates. According to the Conference Board, employers are setting aside an average of 3.9% of total payroll for wage increases in the new year, the most since 2008.3
What Will Corporate Earnings Look Like in 2022? In the third quarter of 2021, U.S. corporate earnings notched a new all-time quarterly record, surpassing the record set in the preceding period. What will Q4 2021 and beyond look like? So far, Q4 2021 looks to be another strong quarter, even though estimates have come down slightly over the past few weeks4:
In our view, falling earnings growth estimates are tied to the Omicron impact, but we could also be at the beginning of a normalization of earnings trends from a relatively bizarre and unexpected two-year period. Earnings surprises – which have largely been to the upside – are moderating towards the longer-term trend. The aggregate tally of total earnings remains very high, and there is a breadth of strength across all the key sectors. But we also know that the unusually high growth rates of 2021 will not continue into the new year, as they in part reflect easy comparisons to the year-earlier periods that were severely impacted by Covid-related disruptions. This ‘return to normalcy’ does not necessarily have to be a negative, as long as corporations continue to meet or exceed expectations.
Planning to Retire This Year? – If you’ve been planning to retire for a while, now is the time to get ready! Retirement marks the end of one life stage, but also the beginning of another—full of new adventures and opportunities. To guide you through this new phase, we recommend a thorough review of your financial and investment situation so you can make any adjustments necessary to keep your plans and lifestyle on track.
If you have $500,000 or more to invest and want to understand your retirement options, get our guide, Looking to Retire Soon.5 Simply click on the link below to get your copy today!
2 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
3 Wall Street Journal. December 26, 2021. https://www.wsj.com/articles/in-hot-job-market-salaries-start-to-swell-for-white-collar-workers-11640514607
4 Zacks. December 15, 2021. https://www.zacks.com/commentary/1839843/making-sense-of-evolving-earnings-estimates
5 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.
Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses.