The chorus of voices suggesting a stock market crash in 2022 appears to be growing. However, I haven’t seen anyone predict a crash during the remainder of 2021. My guess is nobody would dare. And that’s because the stock market is known for its bullish moves leading up to and during the Christmas and New Year period.
The stock market is contrary
If I had faith in the barrage of gloomy predictions for 2022, the sensible course of action would be for me to sell all my shares and wait it out. However, another trait the stock market is known for is moving to confound the majority opinion. So, if most people expect a crash, the most likely outcome is the stock market will do the opposite.
Therefore, if I sold everything, I could lose out. And it’s that kind of dilemma that led to one popular stock market adage: it’s not trying to time the market that’s important, it’s time in the market.
For what it’s worth, my opinion is a full-on 2020-style crash in 2022 is unlikely. At least it’s unlikely to arise because of all the things we know about. Most crashes happen because of an unexpected event or circumstance — a black swan, if you will. However, I could easily be wrong and we may see a crash after all.
But in 2007/08, the credit-crunch crash bubbled up from the murky world of mortgage finance and ham-fisted money manipulation going on around the world. Much of that went on behind the closed doors of financial institutions and didn’t tend to make the financial headlines.
Then in 2020, what looked like a containable outbreak of a new virus turned into a full-blown pandemic. The absence of one for around a hundred years made such an outcome seem like only a remote possibility. But it happened. It was unexpected. And so the market crashed.
I’m hunting for stocks in stable sectors
But today, most people are getting themselves worked up about some known factors that may influence the stock market next year. For example, the possibility of rampant price inflation and rising interest rates; the possible resurgence of the coronavirus and new strains that could overcome the world’s vaccine defences; a perception that the US stock market is mightily over-valued; and a bunch of other things such as the length of time the market has been moving up.
My guess is the market will most likely vent itself to adjust for such risks gradually over time — a bit like a bicycle inner tube with a slow puncture. So, for example, we could see the market standing still as underlying business progress helps valuations catch up. Or as growth numbers moderate in businesses to accommodate changing interest and inflation conditions in the economy.
Therefore, I’d look for stocks to invest in now with businesses operating in stable sectors. And I’d want a prospective dividend yield above 3% to help ensure a positive investment return over time. And with that in mind, I’ve got my eye on educational products and services company Pearson, consumer products business PZ Cussons and fast-moving consumer goods leviathan Unilever.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended PZ Cussons, Pearson, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.