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A look ahead: First quarter 2022 outlook




What are some key factors influencing the economy and markets in the coming months?


  • Liquid bank deposits are up since the start of the pandemic, now including $3.4 trillion in checking deposits that can be loaned out to consumers at exceptionally low interest rates.


  • The labor market is very strong, with payrolls and wages growing at a healthy rate.
  • There are a record number of unfilled jobs (approximately 11 million) that employers are desperately trying to fill.


  • Supply chains buckled under the joint pressures of surging demand and disrupted logistics from COVID-induced lockdowns and shortages in key components.
  • Pressures in this area are slowly easing, but it will take more dedicated efforts to unsnarl logistical problems in the coordinated areas of shipping, rail, and trucking.


  • Supply challenges and liquidity-fueled demand have led to rising prices across the economy.
  • Reported inflation is now running at about 6% annually, while many key goods and real estate prices are rising at double digit levels.
  • Evidence suggests that there is a high risk that inflation will remain stubbornly high.


  • Corporate profitability has been exceptionally strong, despite profit expectations being low.
  • Solid corporate profits should continue with strong economic growth in 2022, albeit at decelerated rates from 2021.

P/E multiples

  • The currently higher price/earnings (P/E) valuations can be justified by exceptionally low interest rates and when growth rates are high.
  • Valuations and P/E multiples are more likely to remain stable or moderately lower, with markets driven primarily by earnings.

Related content:

Capital Markets Perspective (PDF)

Asset allocation views: Current outlook

Tactical vs. strategic position


Equity vs. Fixed Income

  • Risks to the market include the Federal Reserve (Fed) transitioning to less accommodation in the face of decades-high inflation, new variants, diminishing fiscal stimulus, narrow market breadth and stretched large-cap valuations.
  • U.S. economic data remains strong, including employment, retail sales, housing, Industrial Production, Capacity Utilization, and consumer confidence.
  • Unless and until we see an accumulation of deteriorating economic data, we will maintain an equity bias.




U.S. vs. Int'l.

  • Consistent with 2021 we remain overweight domestic equity over international equity, with domestic markets being supported by continued easy financial conditions, record personal savings, strong goods demand, an expected recovery in services demand, and robust employment.
  • Within international, we remain overweight developed over emerging markets, though modestly. Many developed international and emerging markets countries have instituted greater restrictions on mobility than in the U.S.


Market Cap

  • While large-caps have been more overweight in prior quarters, we enter 2022 closer to neutral.
  • Market leadership has become significantly concentrated in mega-cap tech names, with the top 5 largest stocks accounting for more than 23% of the S&P 500’s total market cap, compared to 12% of the market cap, ten years ago.
  • Small and mid-caps are at historically inexpensive levels relative to large and mega-caps, which tilts the probabilities to SMID-cap leadership as catalysts emerge.




  • In Q4 2021, ten-year rates ended the quarter about where they started— near 1.50%. However, during the quarter, expectations increased for a Fed tightening in the first half of 2022. 
  • This shift in sentiment toward a more hawkish Fed was triggered in large part by less-than-transitory inflationary pressures. Also, the unemployment rate continued to fall during the quarter—indicating stronger growth expectations. 
  • We expect continued pressure toward higher interest rates going into 2022. Typically-shorter durations should reduce the adverse impact of rising interest rates.


Yield Curve

  • During the quarter, two-year rates increased by 46 basis points to 0.73%, and 30-year interest rates went down by 14 basis points to 1.90%.
  • Fed tightening will help reduce long-term inflation expectations, and this will put relative downward pressure on long-term rates. 
  • We believe that while the Fed stays in a tightening mode, the yield curve will continue to flatten.


Credit Quality1

  • Credit spreads declined again in the third quarter, falling far below long-term averages.
  • We expect credit spreads to stay relatively range-bound with some slight tightening; however, the low spread levels make corporate credit more susceptible to backups on negative news.
  • High-quality credit, though, continues to offer little absolute yield and remains sensitive to interest rate increases, so we continue to modestly prefer lower quality sectors, like high yield and leveraged loans. 
  • We also favor selectively seeking yield in alternative fixed-income sectors, such as preferred securities and fixed-income closed-end funds.

1 Credit Quality ratings are determined by credit rating agencies Moody’s Investor Services, Inc. or Standard & Poor’s Financial Services, LLC.

The Senior Investment Team is discussing the asset classes, sectors and portfolios they oversee at a macroeconomic level. The views expressed are as of the date given unless otherwise noted and may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or recommendations of any particular security, strategy or product.

Past performance is not necessarily indicative of future results.

Related insights

November 2022 Market Update


Stocks stop skid while Fed keeps rates rising

Stocks stop skid while Fed keeps rates rising

Stocks stop skid while Fed keeps rates rising

Stocks made a strong rebound off recent lows in October, with the S&P 500 moving up about 8%. Bond yields also continued to climb as the Federal Reserve (Fed) ratcheted up its monetary tightening policy.

Stocks made a strong rebound off recent lows in October, with the S&P 500 moving up about 8%. Bond yields also continued to climb as the Federal Reserve (Fed) ratcheted up its monetary tightening policy.