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BofA U.S. quantitative strategist Savita Subramanian believes the S&P 500 will finish 2022 close to current levels, held back by tightening monetary policy but supported by the TINA phenomenon which dictates that There Is No Alternative to equities because inflation-adjusted bond yields remain mired in deeply negative territory.

Ms. Subramanian’s colleague, the firm’s chief investment strategist Michael Hartnett, appears far more concerned about markets next year.

Mr. Hartnett believes the U.S. economy is over-stimulated and that 2020 marked the end of the controlled inflation and stable interest rate environment. He notes that global policy makers added US$9-trillion in stimulus to the economy in 2021 ($4-trillion in fiscal support, $5-trillion in quantitative easing) after injecting $23-trillion in 2020.

The strategist sees inflation as the driver of this year’s strong commodity returns – the highest since 1973 – and the weakest government bond market performance since 1949.

Mr. Hartnett sees the late 1960s/early 1970s as the most accurate market precedent. At that point, “inflation and interest rates [broke] higher from secular low/stable trading ranges on the back of high budget deficits, Vietnam, ‘Great Society’ policies, civil unrest [and a] political and acquiescent Fed.”

The strategist does not see a market downdraft as imminent even if he believes fund managers’ bullish positioning shows over-exuberance as 2021 ends. Over the mid-term, however, he thinks a bull market in commodities and volatility (as measured by the CBOE Volatility Index for equities and the ICE BofA MOVE index for Treasuries) has begun. The bull market in broader equities and credit has, in his estimation, almost reached its end.

As for positioning, Mr. Hartnett recommends high quality stocks in defensive sectors like consumer staples, telecommunications services, pharmaceuticals and sectors like oil that have historically outperformed during periods of inflation. He recommends short positions in copper-related stocks (global growth is set to slow) and semiconductors.

I’m not going to waste time trying to guess whether Ms. Subramanian’s or Mr. Hartnett is right.

But I will keep these forecasts in the back of my mind – along with those of BMO’s Brian Belski, Morgan Stanley’s Michael Wilson and Andrew Sheets, Hugo Ste-Marie at Scotiabank, and Jonathan Golub and Andrew Garthwaite - just to name a few – as the year begins.

Each outlook represents a potential roadmap for asset price behaviour in 2022. If markets start following the script of one of these forecasts, it will be time to pay far closer attention, because that strategist is the most likely source of accurate forward-looking indicators.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

GIC rates are finally on the rise - should you buy now or wait for better?

We hear a lot these days about the outlook for higher interest rates in the next two years, which suggests better times for GIC investors ahead. But recent developments in the GIC world argue for investing at least some money right now. Rob Carrick explains.

As inflation continues to rise, investors should jump into these three retailers

So, what do ordinary consumers do when costs rise? They look for cheaper alternatives. Hello, big box stores. Your local Walmart and Costco (and Target if you live near the U.S. border) were already looking forward to a healthy holiday shopping season. Now that’s likely to be boosted by consumers seeking the lowest prices they can find. Gordon Pape looks at the investment case for these big retailers.

Are investors being misled by grand green claims, attached to pricy financial products?

Many investors are familiar with the benefits of including green stocks and bonds in their portfolios: They are using their savings to back companies that can lower carbon emissions while also generating compelling returns over the long term. But green investing is also taking a few knocks – in particular from some academics and professionals who believe that investors are being inundated with financial products designed to capitalize on a hot trend and generate revenue for Wall Street and Bay Street. While these criticisms don’t refute the virtues of green investing, they suggest that investors may need to increase their diligence at a time when interest in sustainable investing is strong. David Berman reports.

What’s driving auto stocks?

Market manias always begin with a great story, and right now there is no greater story than the one about how electric vehicles are poised to transform the auto industry. The narrative is thrilling in its implications for share prices. However, it depends on the willingness of investors to overlook gaps in the plot. Taken as a whole, it raises more questions than it answers. Ian McGugan tells us more.

The TFSA contribution limit is tied to inflation – so why are we not getting more room next year?

One small benefit of inflation is that it helps drive the annual contribution limit for tax-free savings accounts higher. Not in 2022, however. Inflation hit an 18-year high of 4.7 per cent in October, yet the Canada Revenue Agency recently said the contribution limit for TFSAs next year will remain at $6,000 for the fourth straight year. Rob Carrick explains why.

Others (for subscribers)

The most oversold and overbought stocks on the TSX

Scott Barlow’s Top Links: Dividend investors, 2022 is going to be even better than you think: Scotia

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Directors make six-figure purchases in two dividend stocks

Number Cruncher: Six restaurant stocks leveraging technology to offer steady growth

Globe Advisor

The poisoned chalice of the Fed chair job

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Ask Globe Investor

Question: Is there an easy way to look up the sector weightings of the S&P/TSX Composite Index? I like to compare the performance of my self-directed portfolio against the S&P/TSX. This year, I am slightly trailing the index, and I would like to determine if this has to do with my preference for avoiding certain sectors.

Answer: One method is to use an exchange-traded fund such as the iShares Core S&P/TSX Capped Composite Index ETF (XIC) as a proxy for the index. If you navigate to XIC’s page on the iShares Canada website (do an internet search for “XIC ETF”) and scroll down to “Exposure Breakdowns,” you’ll find up-to-date sector weightings for the fund. As of Nov. 25, the top five weightings were financials (31.9 per cent), energy (13.2 per cent), information technology (11.9 per cent), industrials (11.6 per cent) and materials (11.4 per cent).

You’ll also find a list of individual stock weightings on the XIC page. Note that Shopify Inc. (SHOP) is the highest-weighted stock in the fund – and on the index – at about 7.5 per cent. If you don’t have a position in Shopify, which has a year-to-date return of about 44 per cent, that could also explain your portfolio’s underperformance compared to the index.

I’m not suggesting you should buy Shopify shares. But if your goal is to keep up with the S&P/TSX, you could simply buy the index through XIC or a similar fund such as the BMO S&P/TSX Capped Composite Index ETF (ZCN). Thanks to their very low management expense ratios of 0.06 per cent, both ETFs do an excellent job of tracking the index.

--John Heinzl

What’s up in the days ahead

Robert Tattersall will have some thoughts on the unintended consequences of the explosion of small ETFs on the TSX.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

Editor’s note: An earlier version of this newsletter incorrectly stated BofA U.S. quantitative strategist Savita Subramanian believes the S&P 500 will post a 6.5 per cent return in 2022. Ms. Subramanian expects earnings per share growth of 6.5 per cent next year, but has a year-end 2022 target of 4600 for the S&P 500, which would represent little change from current levels.