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- Expect a 9% return for stocks and a volatile market in 2022, billionaire Kevin O’Leary said.
- “More normal markets are now here, and we’re going to get volatility,” he told CNBC on Friday.
- High inflation will spook equities, particularly tech, the “Shark Tank” investor said.
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After a stellar 2021, equity investors could be looking at returns of just 9% in 2022, according to “Shark Tank” investor Kevin O’Leary.
A common pattern in major US indices last year was that stocks hit record high after record high, as investors appeared unfazed by rising inflation. Corporate earnings largely flourished. Moreover, low interest rates also drove investors to seek returns in stocks, rather than low-yielding bonds.
“The hallmark of that year (2021) was no volatility, even though it was horrific in terms of the pandemic and other issues,” the O’Leary Funds boss, who goes by the nickname “Mr. Wonderful,” said in a CNBC “Halftime Report” interview on Friday.
“But more normal markets are now here, and we’re going to get volatility.”
The S&P 500 has risen 23% and the Nasdaq is up 21% over the last year. But gains of more than 20% this year aren’t likely, according to O’Leary. He said investors can expect 8% earnings growth and 1% in dividends.
“So you’re looking at a 9% year,” he added.
The investor’s forecast comes after the US consumer price index jumped 7% in 2021, the largest 12-month gain since June 1982. The widely followed inflation index rose 0.5% from November, exceeding forecasts. Supply chain bottlenecks and a shortage of qualified workers in the labor market have driven up prices and eroded the spending power of people and businesses.
Tech names are known to be especially sensitive to rising prices. That’s because rising interest rates, and resulting higher bond yields, make tech stocks less attractive.
“Nobody thinks that’s sustainable but it’s still scary to see it,” O’Leary said of the inflation print. “So, that’s going to put a bit of a spook on equities too, particularly tech. And you’re seeing that manifest itself in these flattish-to-down Nasdaq days.”
The tech-heavy Nasdaq is already down 4.3% so far this year, as Fed officials are weighing up moving faster than previously expected to tackle the strongest inflation since the 1980s. This has sent some investors into a panic.
“But the inherent growth in those companies is still there. Nothing’s really changed. And so, I think it will sort itself out,” the famed investor said.
O’Leary also said he’s expecting a higher rise in the Cboe Volatility index, known as the VIX, a gauge to help measure the level of nervousness among investors.
“I’m looking for muted returns with a lot more increase in the VIX,” he said, adding that market participants should get used to it.
Historically, if the VIX is higher than 20, that’s when fear is entering the market. It’s a sign of a higher-risk environment. The VIX last closed at 19.19 on Friday, but that’s a far cry from the highs above 70 at the start of the pandemic in early 2020.
O’Leary’s advice to investors is to get over volatility and still allocate to equities “because there’s really nothing else to do if you want to beat inflation.”
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