2022 Schwab Market Outlook: Ebb Tide

The S&P 500 index is up more than 20% so far this year, but more than 90% of its member stocks have had “correction” level drawdowns—more than 10% from a peak—at some point this year. In short, while overall stock market performance has been strong, there has been a lot of churn beneath the surface.

Will U.S. stock indices begin to reflect more of that weakness in 2022? It’s possible, especially as the world’s major central banks begin to drain the liquidity that has supported financial markets since the start of the COVID-19 pandemic in March 2020. But major uncertainties remain, including the pace of inflation, how central banks will react to it, and the direction of the virus.

Illustration by Charlos Gary. © 2021 Charles Schwab & Co., Inc.

U.S. stocks and economy: Under pressure

The 2020 pandemic-sparked recession was sharp and short at only two months. The rebound in economic activity also has been sharp, but uneven, as the services sector faced rolling social-distancing restrictions while demand for goods and materials surged. The question heading into 2022 is where the economy goes from here.

Illustration by Charlos Gary. © 2021 Charles Schwab & Co., Inc.