What Wall Street expects for stocks in 2022

Yahoo Finance's Emily McCormick explains Wall Street analysts' expectations for GDP growth and inflation.

Video transcript

JULIE HYMAN: Now let's also talk about the long-term thesis for economic growth here. We've been talking about it a little bit today with some of our guests. Economic growth next year, what's the Fed going to mean for that economic growth. Our Emily McCormick has been sifting through the many, many outlooks that come our way at this time of year to figure out what people are saying about economic GDP growth next year. Emily, what are some of your takeaways?

EMILY MCCORMICK: Well, Julie, Wall Street is expecting a deceleration in GDP growth, but also somewhat lower inflation next year, as some of the supply chain challenges and shortages that have been hitting the economy this year, especially in the second half, begin to ease.

And I do want to focus on the predictions of three major Wall Street firms because I think they really capture the spirit of what economists as a whole have been saying about growth for next year. And those three are Wells Fargo, which predicts real GDP growth of 4.1% for 2022, Bank of America with a prediction of 4%, and Goldman Sachs with a recently revised estimate of 3.8%.

And to put these forecasts in perspective, we should also note that this year, GDP grew by more than 6% in each of the first and second quarters, and then by 2.6% so far from what we've seen in the latest estimate for the third quarter. And then also, again, for a little bit more context, we should also note that the FOMC's 2022 economics projections based on their dot plot from September saw real GDP rising by 3.8% next year after ending at a 5.9% rate for 2021.

Now, one of the things that I do want to highlight is that most of these firms' predictions, with the exception of Goldman Sachs, didn't necessarily take into account any major impacts from the omicron variant. We did just get a revision coming out from Goldman Sachs's economics team that downwardly revised its outlook to see GDP growing by 3.8% on a full year basis next year, down from the 4.2% clip that it saw previously, again, taking into account that new variant.

And that firm does see three primary impacts of the virus concerns on economic activity. And to paraphrase those, Goldman Sachs noted that omicron could modestly drag on service spending. It could also exacerbate good supply shortages if restrictions tighten broadly. And third, it could also delay the timeline that people feel comfortable returning to work. So perhaps a little bit of an impact on the consumer sentiment as well here.

But in terms of the inflation outlook, the economists at Goldman Sachs did characterize the potential effects of omicron as ambiguous since they noticed that there could be reduced demand for virus sensitive services like travel that do bring down prices, but that these trends could reverse as demand recovers. But again, guys, overall, likely to see a little bit of a deceleration on growth, both top line economic growth and GDP activity, but also a little bit of an easing in some of these inflationary pressures, even before we potentially see some Federal Reserve rate hikes, which many economists are also expecting as well. Guys.