Why 2022 will be a year of living dangerously for investors

Smart Money: inflation is rising and the interest rate cycle is turning

Investors: are you ready for 2022? Photograph: Justin Lane/EPA

Investors: are you ready for 2022? Photograph: Justin Lane/EPA

So far in 2022 financial markets are hanging in. But with inflation soaring, the interest rate cycle turning and continued uncertainty about Covid-19, investors now face significant uncertainties. The return of inflation, particularly if higher rates persist, is very important. So far markets are counting on a a benign outcome – strongish growth and some inflation, but not too much.But the dangers are obvious. 2022 looks like a year of living dangerously for investors.

1. The Omicron Trade

Equity markets had a few sharply negative days towards the end of last year, as news of the emergence of Omicron rattled nerves. But they are now generally on the rise again. This is driven by two things. One is the evidence that much of the world economy can continue to operate, even during a Covid wave. Markets crashed when the pandemic broke, but central banks stepped in on a major rescue mission and then, as time went on, confidence returned in many sectors.

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