- The US stock market had another stellar year, with the S&P 500 returning 29% to investors.
- RBC’s US equity strategy team expects 2022 to bring a year of solid, but more moderate, returns.
- The bank’s top stock ideas for the new year feature several with the potential for exceptional returns.
The US stock market ended 2021 with yet another record performance, as the S&P 500 returned 29% to investors, bringing the index’s cumulative return for three consecutive years to above 100%.
This is the first time the index delivered a three-year triple-digit return since the tech bubble of the late 1990s, according to Bank of America.
Annual double-digit returns are now becoming almost commonplace for the S&P 500.
Over the past 10 years, the average annual return from the US stock market has been around 14%, according to officialdata.org. That compares with an average annual return of just 1% in the previous decade.
Now after a spectacular decade-long bull rally, investors are rightly asking: “What’s next?”
The consensus amongst most investment banks and asset managers is that equities remain the asset class to invest in, but those high double-digit returns of the previous decade are no longer a guarantee.
“Our US equity strategy team expects 2022 to be a year of solid, but more moderate, returns relative to 2021, supported by a strong economic, earnings, and cash deployment backdrop, and believes that stocks remain attractive relative to bonds for now, though less so than a year ago.” Graeme Pearson, RBC Capital Markets’ global head of research, said in a January 4 research note.
Despite the more subdued outlook, RBC’s annual top 30 high-conviction stock picks for the first quarter of 2022 feature a number of big hitters with the potential for returns of 40% or more.
The list is a collection of RBC’s analysts’ best ideas for the year and is updated quarterly. Since its inception in December 2019, the list has returned 39% to investors, which is 14 percentage points above the STOXX Europe 600 index, but 12 percentage points below the S&P 500.
This year, the list is notably overweight energy, which aligns with RBC’s US equity strategy’s outlook for the year. The team’s strategists recommend balancing value and growth over a 6- to 12-month period, with overweight positioning in financials, energy and technology stocks.
The list is also informed by many of the bank’s flagship research products that focus on the disruptive forces that will transform the world. In 2021, the bank released an in depth global report outlining five themes investors must understand to prepare for the years ahead, in which it highlighted the 71 companies best positioned to take advantage of these themes.
Eleven stocks from that wider report currently feature in the top 30 list.
Below is the full list of stocks with all information being current as of January 4. The implied all-in return is a combination of the returns from price changes and dividends.
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