London (CNN Business) - The stock market just wrapped up one of its best years on record. Can it repeat its stellar performance in 2022, even when faced with inflation concerns and rising interest rates?
Wall Street certainly thinks so.
Jonathan Golub, chief US equity strategist at Credit Suisse, predicts that the S&P 500 will rise to 5,200, roughly 9% above where it finished 2021. That would mark a healthy gain, though it pales in comparison to the index's 27% climb over the past 12 months.
Driving the call: Golub said he's increasingly optimistic due to "robust projections for economic growth" — and because he expects companies to dole out more cash for stock buybacks, a move that lifts share prices.
He also said Credit Suisse is no longer betting that corporate taxes will rise to pay for fresh government spending. That's allowed the bank to raise its forecast for corporate earnings over the next two years.
Another good sign: The Russell 2000, which tracks smaller American companies, rebounded in December after taking a beating in November. The fate of smaller firms is closely tied to the health of the US economy, since they aren't insulated by their size. Their stocks are often seen as a barometer for economic expectations.
The big question mark is interest rate hikes. Near-zero rates have been the driving force behind the stock market's rebound since its initial Covid-induced crash, providing companies with access to easy money and boosting overall confidence.
The Federal Reserve has indicated it could raise rates three times in 2022 as it tries to rein in inflation.
Should that happen, borrowing costs will still be extremely low by historical standards. But an environment of increasing rates could shift the mood.
"Risks are rising as central banks are getting closer to winding down emergency monetary support," Goldman Sachs analysts said in the bank's 2022 forecast for stocks.
But the strategists said the market rally is likely to continue thanks to an expected 8% increase in global corporate earnings.
"This should support a reasonably strong year for equity markets overall, contributing to another year for the new bull market, albeit at a slower pace," they said.
My thought bubble: Year-ahead predictions are best seen as a snapshot in time. Wall Street's market estimates for 2020 were quickly thrown out as the pandemic gathered steam. At the start of 2021, few policymakers expected inflation would rise so sharply.
Especially during a global health crisis that can obscure economic data and make it harder to see the future, it's tough to say with certainty what's coming around the bend. For now, though,sentiment is positive.
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