At the beginning of each year, money managers and financial experts release many predictions around what the forthcoming 12-months will bring from an investing standpoint. But forecasts rarely pan out, particularly in a year as unpredictable as 2021. It is hard, if not impossible, to outguess the market.

So what is the Hill Investment Group take? We expect the US stock market to be up in 2022 between 6-10%. We also predict that the market will most likely not return between 6-10% in 2022.

You probably needed to read that prediction twice, as it seems to contradict itself. Let us explain.

Why do we expect the market to be up between 6-10% in 2022?

That probably seems too simple of a claim given the current market environment. As of the writing of this post, the total US market is at an all-time high; Omicron is spreading rapidly throughout the US, inflation expectations are higher than they have been in decades. Historically, the market has been up, on average, between 6-10% annually. Clearly, with all of these unique circumstances, we can’t expect this year to be like previous years, right?

That is the beauty of the market. Every year is different, and every year the market takes all of these factors into consideration when setting prices. Investors know all of the risks mentioned above, and the current price reflects a fair price for taking on those risks. No matter how you slice the historical data, the market is up about two-thirds of the time, usually between 6-10%. Whether you look at what political party is in office, what inflation expectations are, whether the market had a positive return the previous year, or even if the St. Louis Cardinals made the playoffs…These factors are incorporated into the current price and usually provide investors an expected return roughly between 6-10% over the long term for taking the risk of investing in the equity markets.

Why do we predict that the market most likely will not return between 6-10%?

Although the market, on average over the last roughly 100 years, has returned between 6-10% annually, it rarely returns within that range in any single year. About 1/3rd of the time, the market has had a negative return, about 1/3rd of the time a return between 0-20%, and about 1/3rd of the time a return above 20%. Dating back to 1928, the market has only had a return within two percent of the long-run average four times! Yes…only four times in nearly a century.

This is why we EXPECT the market to return between 6-10% but PREDICT that it most likely will not.

When investing in the stock market, the range of investment returns is much larger than the average return. This is part of what makes investing so hard and why many investors, especially those that choose to do it themselves, get scared and leave the market just when they should likely stay in…or vice versa. It is difficult to see the long-run average when dealing with such volatile swings year to year. However, when you take the long view, embrace our relationship, and think in terms of decades rather than years, you will start to see the benefit and ignore the year-to-year noise and volatility.


Data from Fama/French US Total Market Index

Hill Investment Group