The Kansas Jayhawks outdueled the North Carolina Tarheels on Monday to win the NCAA basketball championship. With the Final Four drawing to a close, LPL Financial has released its annual list of four key factors that will impact the outlook for the S&P 500 ETF Trust (NYSE:SPY) for the remainder of the year.
This year's list includes four straightforward factors that will make the difference between a 2022 market rebound or more downside for stock prices ahead.
Related Link: Why Ukraine's Infrastructure, Resources Are Pivotal To The Global Economy
Factors To Watch: First, LPL said consumer spending will play a key role for investors in the near-term. The firm is expecting consumer spending to continue to rotate more from durable goods to services as the economy recovers from the pandemic. LPL projects above-trend U.S. economic growth this year, despite several headwinds for the economy.
Second, LPL said earnings growth will be a major factor in determining the S&P 500's near-term direction. With first-quarter earnings season just around the corner, LPL said U.S. corporate earnings power is in excellent shape at the moment. Inflation has given many companies pricing power, and S&P 500 companies may report as much as 10% earnings growth in the first quarter. For the full year, LPL is still projecting mid-to-high single digit EPS growth for the S&P 500.
Third, LPL said investors should be watching interest rates. At the beginning of the year, the bond market was pricing in two or three 0.25% rate hikes in 2023. Now, the bond market is expecting at least 2.5% worth of interest rate hikes by year's end (2022).
Finally, LPL said inflation will be the fourth determining factor in 2022 stock market performance. Rising prices squeeze discretionary spending and real wages, but an overly aggressive Fed comes with its own set of risks. LPL is hopeful the Fed can reach its forecast of 4.1% inflation by year's end without doing any severe damage to the economy.
Bezinga's Take: First-quarter earnings season will be a helpful indication for investors of just how much the current set of macroeconomic risk factors are impacting companies top and bottom lines. However, second-quarter guidance may be far more important, given Russia's invasion of Ukraine didn't start until late February.
