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A confluence of positive factors continued to favor global stocks last year, pushing most major indices to new all-time highs. It’s the second consecutive year of strong gains, as hard assets outperform cash by far.

Inflows coming from retail traders and institutional investors impressed on the upside, and despite that, some experts still believe there is money sitting on the sidelines. However, even though the circumstances have been favorable for shares, it’s yet to be seen whether the trend can keep advancing at the same pace in 2022.

Blue-chip stocks’ earnings impress

One of the early warning signs is that gains have been centered around large-cap stocks. Apple has recently reached $3 trillion in market capitalization, the first US company to achieve this status. Amazon, Microsoft, Google, and Facebook posted above-expectations earnings throughout 2021, motivating market participants to continue piling up on their exposure.

It was also a year during which Tesla became a trillion USD company, reaching the threshold at a fast pace. As developments in profitability are still expected to improve, the brand is close to meeting its target of delivering 1 million EVs per year. It came close in 2021 and 2022 should be the year it happens.

Analysts are worried that the big companies, which are part of the major stock indices, are in charge of a big share of the gains. When these shares aren’t able to do the heavy lifting, a reversal to the mean is bound to occur.

Monetary policy starting to shift – rates still very low

Furthermore, ultra-loose accommodative policy has served as a major tailwind for stock trading in 2021. Central banks flooded the markets with liquidity, aiming to suppress volatility and ensure financing for both governments and companies issuing bonds.

Although the stance of monetary policy is changing across the world, conditions still favor hard assets. Real interest rates are negative in all developed nations and it will take more than a few 25 basis points rate hikes to change that.

Emerging markets are now active on the policy normalization front, given higher inflation and currency risks. The BoJ and ECB seem to be stuck at current levels, while the BoE is the first major central bank to have raised interest rates.

Is the tide turning?

Attention will probably be on the US Federal Reserve, which continues with its hawkish tilt. Inflation is at a decades-high point and that has important social ramifications. The central bank already dropped its transitory narrative and now accelerates the taper speed.

Futures markets are pricing an 80% probability for a rate hike in March 2022 and following the release of the latest FOMC meeting minutes, investors are starting to think about a potential balance sheet unwinding.

The US dollar rose in 2021, as the FED was expected to shift monetary policy. A continuation of the trend might have a deflationary impact on the global economy, but at the same time, won’t favor US stocks.