A volatile stock market, rising prices and the potential for hikes in interest rates are making 2022 a year to watch for consumers, investors and businesses alike.
But the sky isn’t falling, insists Bob Willis of Willis Investment Counsel in Gainesville.
“It’s really remarkable how resilient companies have been, how their profit margins are very, very strong and debt levels are low,” he said. “Companies are doing well and that’s your focus with investing — more so than the economy of the stock market.”
The stock market, long seen as a main feature of the overall economy, has been anything but stable in recent weeks and a key driver of that is the Federal Reserve, which is preparing to raise interest rates. Economists believe the U.S. central bank could raise them incrementally throughout 2022 and into 2023 as a way to combat inflation.
Economic news isn’t all that’s rattling stocks. International tensions, such as with Russia and Ukraine, and the continuing COVID-19 pandemic also influence Wall Street.
Amid the noise, economists urge Americans holding 401(k)s not to panic, that the stock market has a history of steep corrections and rebounds.
Not reacting, however, “is so counterintuitive,” Willis said, comparing the behavior to being in a car with self-driving technology. “Surely I need to touch the steering wheel and do something.”
“Volatility is perfectly normal,” he said. “What is abnormal … is any sort of constant up trajectory.”
The everyday problem for consumers is more related to Walmart than Wall Street — in the stuff people are buying off the shelves.
A recent Commerce Department report that’s tracked by the Fed shows prices rose 5.8% last year, the sharpest increase since 1982.
A number of factors affect inflation, from more discretionary spending to lesser supply of goods. One example is Americans being flush with cash in the wake of federal stimulus packages after the economic crash caused by the COVID-19 outbreak.
“The global economic recovery is driving up demand for goods and services that weren’t readily available for close to a year. Inventories have been depleted as consumers demand more food, household items and fuel,” according to Nasdaq, a global electronic marketplace for buying and trading securities.
Conventional wisdom is that rising interest rates mean consumers will have less money to spend, slowing the economy but also inflation.
That may especially affect mortgage rates and home buying, which also affects home prices.
But Willis isn’t expecting much short-term impact on development and growth that’s surging in Hall County.
At incremental interest hikes of 0.25% through the next 18 months, “the borrowing costs that are the fuel for development are still very, very low and very attractive, and will still be low and attractive a year from now,” he said.
Also, “there’s no shortage of capital for developers to be able to get to for whatever project they want to build,” he added.
However, too much a dip in the economy could lead to recession.
That’s a concern for John Scott, economics professor at the University of North Georgia.
“I have to agree with the people who have put their money where their mouth is — the investors. I think they foresee that it is quite possible and perhaps likely, and so, I tend to trust them,” he said.
“First of all, inflation can cause a recession or stagnation and second of all, if the fed tightens up to get rid of inflation, that can cause a recession as lending dries up,” Scott said.
Jeff Humphreys, who heads the University of Georgia’s Selig Center for Economic Growth, is upbeat about the economy. He expects better-than-average growth in jobs and gross domestic product in the coming year.
“The risk of recession is low,” he said.
Also encouraging is wages are going up.
“That’s a good thing, because those free checks the government was handing out are over,” Humphreys said. “You’ll have to earn money the old-fashioned way, not through the mailbox.”
The Associated Press contributed to this report.