Real-Estate Investing in 2022, 3 Types of Stocks to Buy: JPMorgan

  • Stock volatility has increased in recent weeks, a trend that could continue into 2022.
  • A glowing housing market can also shape the new year.
  • JPMorgan Asset Management’s Jack Caffrey identified three types of stocks to buy.

The so-called Santa rally, which some expected on Wall Street, did not materialize. Trading was choppy towards the end of the year, and a stock market veteran says investors should expect more of it in 2022.

Jack Caffrey – a stock portfolio manager at JPMorgan Asset Management who manages $ 2.7 trillion in assets – got his stake in the market cycles after spending over 30 years in the investment world. He is now responsible for the company’s focused dividend growth strategy, where he builds model portfolios that affect clients’ positions.

Although Caffrey maintains a constructive view on stocks through 2022, he believes the way forward could be difficult.


volatility

could rise in the new year as the economy transitions from early to medium cycle and supply chain problems and labor shortages persist.

“A lot of investors like to build much more straightforward models of what they think growth could look like,” Caffrey said in an interview with Insider. “The reality is likely to be a lot more chaotic.”

With that in mind, Caffrey expects the economy and labor market to continue to recover from the cure caused by the virus


recession

even if the improvement rates slow down. Such moderations are normal and healthy after a period of rapid expansion, but some investors fear that slower growth combined with more restrictive Federal Reserve policies will disappoint stocks.

“Equity investors could start asking for higher possible compensation for the risk they will ultimately bear,” said Caffrey. “By and large, however, positive gains should translate into positive gains for the broader market, but it’s likely going to be a bumpier ride than we’ve seen in the past 18 months.”

The US Federal Reserve’s recent decision to reverse its loose monetary policy earlier than planned resulted in a volatile trading period, with stocks rallying before giving up on gains and more. Traders fear that fewer bond purchases and faster rate hikes will result in less market


liquidity

and higher cost of money, said Caffrey, both pessimistic about stocks.

Without a steady flow of money from the Fed into the economy – and inevitably into the markets – investors are less likely to take big risks. Speculative assets like growth stocks with high earnings multiples have sold off heavily in recent weeks, but Caffrey said the damage may have been exaggerated.

“Market participants tend to overcorrect on the downside,” said Caffrey. “We have a lot of data to support the idea that people are risk averse. So when things go bad, they tend to sell first and then ask questions. “

The Fed’s dramatic swing came when inflation hit a 39-year high of 6.8% in November, a level Caffrey described as “uncomfortably high” above its long-term target of 2%. Although the US Federal Reserve is an easy target for market experts, Caffrey said an economy a little too hot is far better than the alternative of a failed economic recovery due to insufficient demand.

Price rises make the investment landscape difficult, but Caffrey said there are still ways to find – if investors look into the right pockets of the market.

Where should one invest in 2022?

One of Caffrey’s most convincing bets is that the housing market will be on fire in 2022.

Those unfamiliar with real estate will be forgiven for getting nervous when house prices skyrocket just 15 years after the housing bubble and Great Recession. However, experts have argued that contrasting these two bull markets would be comparing apples and oranges.

First, the basics are completely different. Higher credit standards ensure that people with subprime credit ratings no longer flood the market like they did back then.

The other main reason the hot housing market is still on its feet is simple supply and demand, Caffrey said: For over a decade, homes have been underbuilt and low interest rates have spurred home purchases.

“The housing market appears to be solid for some time due to demographics, savings and supply constraints,” said Caffrey.

If the real estate market stays strong, then, in Caffrey’s view, the following three types of stocks look like good bets: Banks, House builder, and Materials company. The former are likely to benefit from a still booming economy, while the latter two are pure games of a housing boom.

Investors have low expectations of banks, Caffrey said, even though financial institutions avoided the worst-case scenario of the pandemic by protecting balance sheets and preventing loan defaults while keeping consumers financially healthy. These companies can now return capital to investors through dividends and buybacks, the market expert said.

Home builders look attractive, Caffrey said, as the industry trades at less than 10x profit while the wider market’s profit is double. However, Caffrey said the danger with investing in cyclical companies is that they often look cheapest on top of their earnings.

“That’s the controversy about home builders today,” said Caffrey. “Is this the largest number of homes sold in the US right now? I feel that this is not the number and are increasingly able to return cash to their investors. “

After all, companies that sell materials needed to build houses, such as steel and lumber, would be an easy investment if the housing market stays strong for the next year. The prices of raw materials rose at the beginning of the year due to supply bottlenecks that could take many months to resolve, thus boosting the profits of the raw material companies.