Looking forward to 2022

Jan 20, 2021
  • Dennis Lee, Market Insights Lead

It only took a few days to show that simply advancing to 2021 would not suddenly fix the turmoil we faced in 2020. “Looking forward to 2022,” was the snarky, defeatist refrain resounding within the Twittersphere.

When it comes to markets, though, “Looking forward to 2022” may prove to be both a good descriptor and good advice.


When the pandemic hit early last year, governments around the globe took extraordinary action to enact monetary and fiscal relief. The goal was to put the economy in the freezer, until we could heat it up again. But as the pandemic still rages on, markets have defied expectations and reached all-time highs.

Why? Because markets are already looking toward a reheated economy, much like one would for that slice of pizza in the freezer, carefully wrapped in aluminum foil. And the arrival of not one, but multiple vaccines, is the ultimate oven.

A longshot to several approved shots 
Probability of approved vaccine available for 25 million people in the U.S., May – Oct. 2020

Insight week chart


Source: BlackRock Investment Institute, with data from the Good Judgment Superforecasters project, October 2020. Notes: The chart shows the probabilities assigned by the Good Judgment project – a forecasting services firm – to various time frames over which an FDA-approved vaccine might be available to inoculate 25 million people in the U.S. Full details available here.

The potential timeline for a full economic restart always depended heavily on the path of the virus, and the development of a vaccine was viewed as the best backstop. But it was considered a longshot that we’d have even one vaccine by March 2021.

The green line in the graph shows the estimated probability that a vaccine would be available by April 2022. The forecast last May was that that chance was only a coin flip. Keeping the economy successfully frozen for that long may not have been possible, and would have risked more deterioration to industry and society.

Instead, we’ve seen a historic, heroic, and perhaps lucky set of circumstances that have led to not one but multiple vaccines show efficacy in trials, and a few approvals in the U.S. and around the globe. Sequencing the genomes to develop an RNA vaccine at this rate was simply not possible even just a few years ago.

Still, by most estimates, the U.S. may not reach herd immunity through vaccinations until late 2021. So what are markets doing? To echo the Tweet, “looking forward to 2022.”

Redesigning portfolios to look forward

Markets are looking to a brighter future. But the same can’t be said about investor portfolios.

Our analysis of more than 20,000 portfolios in the U.S. gives some insight to how financial advisors are preparing for the decade ahead. And in many cases, they are not. The reality is that while markets factor in what is projected to occur in the future, portfolios remain stubbornly tied to what’s done well in the recent past.

A few highlights:

  • Risk.The average portfolio was 25% more volatile than last year, which makes sense given the historic events on 2020.* But staying the course with the same strategy could mean greater exposure to potential negative events.
  • U.S. on full tilt. U.S. stocks make up 75% of the stock portion in advisor portfolios (compared to 58% of the MSCI All Country World Index). BlackRock is bullish on U.S. stocks too – but not to this extent.
  • Not sustainable. So far, equities with good ESG ratings have performed better than those with poor ones, as they may be more resilient to the kinds of shocks and uncertainty the world is facing. The average advisor portfolio’s ESG rating is below traditional benchmarks.

Lower returns ahead? 
The BlackRock Investment Institute is forecasting lower returns for the next 10 years relative to decades past.

Insight week chart


Source: Morningstar and BlackRock Investment Institute of 11/30/20. Bonds represented by the BBgBarc US Agg Bond Index and U.S. stocks by the S&P 500 Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index. See end notes for BlackRock capital market assumptions disclosures.

Sticking to your guns isn’t necessarily bad. But portfolio returns for the next decade could be significantly lower than previous eras (see graph above for 10-year projected annualized returns the BlackRock Investment Institute.) Investors have enjoyed a strong decade for U.S. stocks, but often forget that there are no guarantees, like the “lost decade” of the 2000s that had a negative return. And with bonds projected to yield close to zero, financial advisors who rely on a traditional 60/40 portfolio may be in for some tough conversations.

The way forward

Markets for the next few years may be like that reheated pizza from the freezer – investors will have to balance their optimism with realism.

A few ideas to consider:

  • Barbell your bonds. Keep fees low with bond ETFs while seeking new sources of return with flexible and alternative strategies.
  • Think beyond 60/40. Multi-asset portfolios can help navigate volatile stock and bonds markets, while private credit offers new sources of returns as bank financing has not kept up with demand.
  • Equities beyond the ordinary.
    • In our view, most advisor portfolios are drastically underweight international stocks. It may be time to true up in 2021.
    • COVID-19 has changed the future. Seek outsized growth from sustainable investing and megatrends like technology and healthcare.

The bottom line

A lower return world with added uncertainty demands a new approach – one that looks forward to 2022 and beyond.