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Time To Climb The Wall Of Worry Again

Jan. 02, 2022 10:12 AM ETIWM, SPY15 Comments
Marco Mazzocco, CFA profile picture
Marco Mazzocco, CFA


  • Using the Overton Window and Occam's Razor to help investors look at how Covid and inflation will impact the market in 2022.
  • Why IWM could outperform SPY after lagging by 13.5% in 2021.
  • Looking at energy prices as the main driver of inflation and why they look set to stay elevated.
  • How global quantitative easing is keeping inflation from showing up in the bond market.

Bull and Bear on stock market prices

peterschreiber.media/iStock via Getty Images

The market likes to climb a wall of worry is one of the oldest sayings on Wall Street, and in the context of what occurred in 2021, it is certainly a perfect fit. With all the headwinds that stocks

This article was written by

Marco Mazzocco, CFA profile picture
Using my 20+ years of experience of working on Wall Street and a love for analysis and writing to deliver enjoyable articles to the investing community.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (15)

CashFlow13 profile picture
Excellent article, I look forward to future pieces by you.
hawkrnc_19 profile picture
New follower as of today.
Charles Agbakwu profile picture
If supply side inflation remains elevated, it is tough to see how the Russell will be able to outperform on a sustained basis as the effect of supply inflation is more detrimental to small-cap stocks which lean more labor intensive, compared to tech heavy asset lite leaning large cap stocks.

2022 will be the year of the stock picker. The heavy dispersion that funneled money towards crowding into pseudo-safety mega cap tech stocks (FANG+) out of industrials and smallcap stocks will probably be unwound, however I don't think small cap stocks will rise as a monolith like they did in Q4 2020 and early Q1 of 2021. Merely buying and holding the indices for intermediate stretches of time (1-3 months), a strategy which paid well in 2021, won't pay as well in 2022. All indices in 2022 will likely trade like the Russell did for 2021; in a wide 10-13% range.
Marco Mazzocco, CFA profile picture
@Charles Agbakwu My thesis for IWM outperforming is mostly based on a return to normal life which parallels an exit from recession in which case small caps tend to outperform. Both large and small caps can pass through inflation costs to the consumer but a rise in nominal rates will be more of a drag on big cap tech from a valuation perspective IMO.
Market Map profile picture
Keeping it "Oscam's Razor" simple, in 2022, the market is entering the "most favorable" 36 month period of market performance, historically. Measuring performance using "July - June" periods and sorting data over the "Presidential term cycle", since 1934, the 36 month periods starting from July of the "2nd" Presidential term year ( 2022 ) through June of the 1st Presidential term year, the market has produced positive returns in 20 out of 22 periods, with the S&P index averaging +50.6% and the Nasdaq 100 index averaging 61+% since 1986 https://imgur.com/a/ca07DgM - this over many economic environments, geopolitical events, inflationary / deflationary periods, etc.

Additionally, stocks have done well ( especially "Large Value" factor ) after annual, year end CPI readings of greater than > +6% have occurred ( 2021 year ending reading + 6.7% ) https://imgur.com/a/1AkHoq6
It is not only this administration that has had an impact on inflation through misguided energy policies but also the large equity funds that have removed funds from energy companies. Thanks for the article and its good to see some common sense out there.
Finally, an intelligently written article, & not touting a pay for service. Thank you & please keep up the good work.
Thank you for the info some good tidbits in there.
Very well written. Than you very much for your analysis!
york_beach_22 profile picture
As a new investor, your insights helped me fill in the some of the missing gaps for my own outlook, thank you for the article.
Marco Mazzocco, CFA profile picture
@york_beach_22 You're welcome!
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