The 12 Charts to Watch in 2022

A couple of weeks ago I shared with you some of my Best Charts of 2021 (as well as my Worst Charts of 2021 and then also my favorites!

This week it's time for perhaps one of the most important blogs of the year - the charts to watch in 2022! This has become an annual tradition for me, and FYI: I will be checking in quarterly to see how things are going. It adds in a nice little element of accountability and helps keep you up to date with how I'm thinking. Check out last year's post for an example.

These charts were featured in my recently released 2021 End of Year Special Report -- check it out (free download as a holiday treat!).

That report and those posts were useful to look at, but as interesting and sometimes amusing as it is to look back, as investors we get paid for looking forward, for understanding and anticipating the evolving risk/return outlook.

For me there’s a few existing trends and themes that will remain front of mind and be key to keep on the radar in 2022. Following is a selection of the key charts and indicators I will be watching in the new year.

Enjoy, and feel free to share the link or charts as you see fit! Also be sure to let me know what you think in the comments...

1. Fed Behind The Curve: Based only on this chart we could make an assertion that the Fed has fallen behind the curve. Against that there is the argument that other factors are important too, and not to mention the point that the Fed basically decided to position itself behind the curve to try and prevent the mistake of tightening too soon. With the composite measure of inflation expectations at 40-year highs it’s fair to suggest that the Fed may have some catching up to do as it kicks off the transition away from easing.

chart of inflation expectations vs fed funds rate - fed behind the curve

2. Fed Catch-Up Risk: Naturally the Fed now faces another risk – i.e. the risk of being dragged into a game of catch-up in the context of a very complacent market that has arguably come to expect permanent easing... “the Fed has my back”

Just remember, the old saying of ‘don’t fight the Fed’ means don’t fight against the tides, and the tides are starting to change.

chart of us high yield credit spreads and the fed funds and shadow fed funds rate

3. Growth Scare 2022: But then again, maybe the Fed won’t even get a chance to get a rate hike out the door if the chart below proves anywhere near accurate. This and a few other leading indicators are pointing to a possible growth scare in 2022. Maybe it will be one-and-done for the Fed? Or maybe any such growth scare only serves to extend the economic expansion further by triggering renewed stimulus. Certainly a risk and a key chart to keep on the radar.

chart of OECD leading economic indicators and the growth outlook: growth scare

4. Corporate Capex: This chart hints at perhaps one of the most important themes I’ve been talking about over the past year – the prospect of a possible multi-pronged, multi-year investment boom. The chart below highlights the typical cycle leads and lags in terms of capex growth, and with easier funding conditions, booming corporate earnings, and a rebounding economy it’s likely that we see a generalized uplift in capital expenditure.

But as I’ve been highlighting in the reports there are a few particular sectors that are likely to see a surge in investment in response to surging prices – for example, the global shipping sector, and commodity producers. Both of which have seen capex languish for the past decade, and both of which have seen an effective windfall from the pandemic (i.e. surging shipping rates and commodity prices).

chart of US corporate capex outlook - capex leading indicator

5. Capacity Utilization: Another key impetus to resurgent capex is tightening of capacity e.g. measures of labor market capacity utilization are close to pre-pandemic levels. This will put upward pressure on pricing and present an incentive or signal to firms to lift investment.

But it also speaks to the inflation theme. While some of the short-term upward pressures on inflation are likely to pass (e.g. backlogs, base effects, the initial bounce-back), should we see further and sustained tightening of capacity utilization it will put upward pressure on the more core or underlying inflation pulse.

chart of developed markets economic capacity utilization

6. Government (and Green) Capex: To really drive it home, the capex/investment theme is not just about corporations responding to economic forces, it’s also about governments responding to the pandemic as well as social/political forces.

Specifically in terms of recovery/rebuilding fiscal programs which in many countries have been targeted at infrastructure. But also climate related infrastructure and investment – something that is definitely part of fiscal packages, but also part of shifting investor preferences. We’ve observed a clear trend of rising financial investment into clean energy sectors being followed by uplift in real investment. So altogether it’s quite interesting.

chart of government investment trends in the USA: infrastructure and climate investment