'A few stocks' had a great 2021, but that may not be the case in 2022: Strategist

Insigneo Chief Investment Strategist Ahmed Riesgo joins Yahoo Finance Live to discuss his stock market outlook for 2022.

Video Transcript

- First, we want to get a check of the markets on the Wi-Fi interactive, where we're seeing some modest gains among the indices, mainly among the Russell 2000. That's up about 8/10 of a percent. NASDAQ off of its highs about 1/2 a percent up. Now, if we take a look inside the market-- and this is a NASDAQ 100-- we've seen some of the mega caps switch into the red over the last hour of trading. Nevertheless, Apple, Tesla, Microsoft each off about 1/3 to 1/2 of a percent. Facebook up nearly 1%.

And the real action today in the NASDAQ 100-- I'm just going to switch over here because it's cleaner-- Chinese stocks. A lot of these in there. And you can see the gains they're having today. Neo up 15%, Pinduoduo and Baidu up 11%. We're going to be talking about this in a couple of minutes.

So I'm going to move on, because we have another market, another ETF that is doing well. This is the Ark Innovation Fund. And aside from that red Tesla that you're seeing there, we're seeing some pretty good gains within the components. And we're seeing DraftKings up 7%. So are some other stocks there. Teledoc up 5. Zoom up 5 as well. So is Twitter and Roku.

So a little bit of a turnaround here on Wall Street, and we want to keep it with the markets. And for that, we bring in Ahmed Riesgo. He is the Insignia chief investment strategist. And Ahmed, just wondering what you're making of the price action today, because we're seeing some money touch some sectors and industries that we haven't seen a lot of life in, including cannabis, the Ark Innovation Fund that I was just going over. Just wondering if this is something that's temporary, as in the Santa Claus effect, or if we would expect this to continue into the new year?

AHMED RIESGO: OK, I think if you asked most people out there, did the market have a great year in 2021? Most people would say, absolutely. The S&P is up over 20%. By all accounts, that would be a fabulous year.

But if you actually look underneath the surface, you actually see that it's actually more accurate to say that a few stocks have done phenomenally well, while the vast majority of stocks have actually been in the red. In fact, the median stock just a few days ago was down over 20% in the S&P 500. So I think what you're going to get next year is you're going to see that internal rotation, where these few stocks that performed very, very well in 2021 are going to underperform-- perhaps drag the market down a bit-- while the vast majority of stocks will shoot up. All in all, taken together, I think this looks to around mid-single digit returns for the index for next year.

- OK, so maybe evolving into a more standard year for the passives. I'm just wondering, do you see this evolving? I've talked to a number of analysts, and I keep hearing that they have said this is more of a stock picker's market, that it's evolving into that. Nevertheless, the S&P 500 just knocking it out of the park with something like 27%, 28% returns this year. Do we finally get the active trader's market next year?

AHMED RIESGO: Yeah, look, there is actually a statistic I saw a few days ago where 85% of fund managers are actually underperforming the index. So if you're going to be with the active managers, you want to make sure that you're in the upper tier ones, the better ones. Because most-- the vast majority-- of active managers are underperforming the index.

I think that trend will continue to 2022, where the active managers here, though, will have a little bit easier time outperforming the index. Because, like I said, I think the index has done so well this year because a few stocks-- the heavily-weighted mega cap, especially US Mega cap tech-- have done so well that that's pulled the overall market up. I don't expect that to continue in 2022.

- All right, now I want to ask you about the bond market right now. I'm looking at the Wi-Fi interactive, just at the five-year T note yield. This is a two-month chart. And you can see pretty much sideways trading action. Not a whole lot going on today, down 2 basis points.

That's the five-year. I want to check out the 10 year as well, which we can see as broken through some levels that we saw in December. That's down 2 basis points as well. And then, the 30 year, 30 year down 2 basis points. But the yield curve has been expanding, has been steepening as of late. Just wondering what that signals you as to what's going to happen next year, especially with respect to the Fed.

AHMED RIESGO: Yeah, I think the yield curve steepening is something that you're going to continue to see. And that's a sign of a healthy economic-- or at least a fundamental economic-- background. So you're going to want to see that.

I expect the 10 year to trade into the 2 handle next year. We're looking at somewhere between 2 and 1/4 and 2 and 1/2 percent at the end of 2022. As I said, as long as that curve continues [AUDIO OUT] we'll continue to take that positive sign from the market in stride.

- All right, and also, I have to ask you about the US dollar. I'm going to switch to that on the Wi-Fi interactive. This is a three-year chart, and we've had a steep rise since earlier in the year. But I'm wondering what you make of a stronger dollar. It has effects on US multinationals, as well as emerging markets, as well as crypto, for that matter. Where do you see it heading in 2022?

AHMED RIESGO: Correct. Well, in the short term, it's tough to say, because the US dollar is a high-momentum asset. That's a very important factor in that asset. So when it gets into a new channel or new trend, it's very hard to dislodge it.

So I'm not really sure about the three-month picture, let's say the short-term, near-term picture on the dollar. But the 12-month picture, I'm a little bit more confident that that's headed lower. I think interest rate differentials are at a peak right now in favor of the dollar. I think those will go from being a tailwind to a headwind for the currency.

And I also think that you're going to see the Fed perhaps not turn out to be as hawkish as current market expectations are. All that will be weaker for the dollar. I'm pretty confident that in 12 months, the dollar will be weaker than where it is today.

AHMED RIESGO: And we've got time for one more. I'll give you the floor. Anything you want to say looking ahead to 2022 that we have not covered as of yet?

- Yeah, look, we have about a 5,000 price target on the S&P 500 for the end of next year. Given today's levels on the index, that's around 5% or so return. Not stellar, but, obviously, not horrible either.

But I do expect returns to be better outside the US. We are looking at places like the emerging markets. China, I think, is poised to have a much stronger year on the equity side than it's had this year. So you want to be looking outside of the US for opportunities geographically, and you want to be looking at sectors outside the US mega cap tech names for performance, like in the small caps or mid caps.

- All right, Ahmed, we have to leave it there, but appreciate you coming by. Ahmed Riesgo, Insignia chief investment strategist.