Top 5 Stock Market Trends Traders Need to Watch Out for in 2022

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Here are the top 5 stock market trends traders need to watch out for in 2022. As the world expected 2021 to mark the end of the pandemic and the beginning of a normal life. But a slowdown in vaccinating the world population delayed the recovery and spiked inflation. In the new year of 2022, the world expected recovery, but a Covid 19 mutant (BA.2 virus) immune to vaccine seems to be casting its spell. Even though this year started on a bearish note with the TSX Composite Index in red, some trends will work out in 2022 just how energy stocks worked out in 2021 and tech stocks in 2020. 

Oil and Energy Prices

Oil and natural gas prices are already at their seven-year high as the pandemic magnified the energy crisis in Europe. Many major countries have been reducing investment in oil and gas development to promote renewable energy. But this shift is not going as planned as weather conditions impact renewable energy output. Hence, they have to fall back on conventional energy sources. The oil and natural gas inventories are depleting, putting the focus on Russia, one of the world’s largest oil and natural gas producers.

The oil and gas supply is already constrained. On top of that, there is a geopolitical conflict between Russia and Ukraine. If a war breaks out, energy prices could skyrocket, and Suncor Energy and Cenovus Energy investors could benefit from dividends and capital appreciation. If the Russia-Ukraine tensions ease with talks, even then, economists expect oil prices to touch US$100/barrel over the anticipation of a recovery in industrial production. It is expected that supply chain constraint due to factory closure during frequent lockdowns could ease in 2022 and drive industrial output. This could increase the oil and gas demand needed to run factories.

Electric Vehicles

An increase in industrial production could ease the semiconductor supply shortage. This supply shortage delayed the electric vehicle (EV) growth as automotive companies could not supply their order book. This has piled up orders for most EV makers that they cannot fulfill due to the lack of semiconductors. If the supply shortage eases this year, automotive stocks could surge to new heights.

Magna International stock dipped 11% in the market sell-off, but this is a stock you want to buy the dip. It has won supply contracts from 24 of the top 25 EV makers. Its order book could prove to be a catalyst in the EV boom, but you need to be patient as no one can time the market.

Supply Chain

During the pandemic, significant changes in demand and supply due to factory shutdowns and e-commerce surges created supply chain issues. This crisis created an opportunity for supply chain management. As the world moves to normalization, it would again require strong supply chain management as industries work to meet pent-up demand.

Even if a war breaks out in Europe, the supply chain will play a significant role as logistics and demand-supply shift. In crisis and recovery, supply chain management companies like Descartes Systems and Kinaxis could see opportunities.

Interest Rate Hikes

When the pandemic hit, central banks worldwide cut interest rates and launched fiscal stimulus packages to create liquidity in the economy. But too much liquidity led to higher inflation as the economy started to recover. Now it’s time for the central bank to increase interest rates to control inflation. The increase in interest rates could prove beneficial for banks, as they can charge a higher interest rate on loans. Royal Bank of Canada and Toronto Dominion Bank could see a significant rally this year as interest rates rise.

Technology Sector 

The news of interest rate hikes has got all artificially inflated tech stocks in a correction zone. Stocks like Shopify and Descartes Systems dipped 37% and 15%, respectively, negating more than half their pandemic-induced rally. If you are thinking that tech is now a thing of the past, think again. Some tech stocks like the two mentioned above are in the long-term race. The e-commerce trend is not dying. Instead, it has just begun to get accepted as a way of life. Yes, the pandemic acted as a catalyst and inflated their prices, making them overvalued.

But these stocks have corrected and returned to the normal growth path. If there is any time to buy tech stocks, it is now before they rally back to overvaluation.

Investing in 2022

These five trends would drive the stock market in 2022. Not all of the above-mentioned stocks might surge significantly in the first half as their rally is relative to certain events like auto stocks’ rally depending on the easing of chip supply. But patience would be rewarded. The second half of the year could see a significant rally if there isn’t another pandemic wave.

The surprise element in the stock market is what creates windfall gains and losses. All you have to do is be invested in it to get surprised and rewarded.

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