Investors fear inflation most in 2022 and see lower stock market returns, CNBC survey shows

Traders work on the trading floor at the New York Stock Exchange (NYSE) in New York, December 17, 2021.

Wall Street investors believe inflation will remain a major roadblock for the markets in 2022 and stocks will only see muted returns, according to the new CNBC Delivering Alpha investor survey.

We polled about 400 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood on the markets for the rest of 2021 and next year. The survey was conducted this week.

More than half of the respondents said inflation worries them the most about 2022. Thirty percent said the Federal Reserve raising rates at the wrong time is a top concern for them next year, while 17% said the pandemic and its economic impact is the biggest worry.

For months, investors have watched a variety of inflation data points show their highest levels in decades. The consumer price index, which measures the cost of a wide-ranging basket of goods and services, surged 6.8% on a year-over-year basis in November, hitting the fastest rate since June 1982.

The Fed signaled it will make aggressive policy moves in response to rising inflation, including accelerating the reduction of its monthly bond purchases. Fed officials also see as many as three rate hikes coming in 2022.

“There are serious headwinds to worry about,” Brad McMillan, chief investment officer at Commonwealth Financial Network, said in a note. “Inflation is at the highest level in decades. Supply chain problems seem to be insoluble. If these issues keep getting worse, they could derail the recovery.”

The S&P 500 has rallied over 27% this year to a record high as the market climbed a wall of worry from surging inflation to the ongoing pandemic to the rollback of monetary stimulus. For 2022, investors think gains will be much lower.

More than 50% of the survey respondents expect the S&P 500 to go up less than 10% in 2022. Nearly 18% think the market will produce another double-digit year, while 10% of the participants think stocks will be flat next year.

Among different asset classes, equities are still investors’ top choice for 2022, according to the survey result.

“While inflation is a concern and source of volatility, it also makes stocks the most compelling choice among the major asset classes,” Tony DeSpirito, chief investment officer of U.S. fundamental active equity at BlackRock, said in a note. “Individual companies will manage through differently, highlighting the importance of a stock-by-stock approach.”

In terms of stock preferences, 35% of the respondents said they favor financials and 27% like cyclical names benefiting from the economic recovery. Technology stocks in general became less favorable among investors in 2022, though they still managed sizeable gains.