5 Trends to Watch for U.S. Equities Markets in 2022
U.S. equities markets reached new highs in 2021 as retail investor participation increased, volume surged, and benchmark indexes achieved new records. Given these trends, Chuck Mack, Head of U.S. Equities at Nasdaq, looks at what to expect in the new year.
Retail
Retail investors made a noteworthy impact on the market over the past year. Amid the pandemic, retail activity soared, and it has yet to come off its peak, according to Mack.
“We really saw [retail] take off in 2020, and I think a lot of people attributed that purely to the fact we had the pandemic locking us all down,” Mack said, “Folks had more time to focus on individual investments.”
However, he noted that the retail community continues to be engaged in the market.
“I don’t expect that to change anytime soon,” Mack added.
Institutional
On the institutional investor front, Mack expects the trend of specific use case-focused solutions to execute large trade volume, such as Midpoint Extended Life Order and dark pools, to continue.
Mack specifically noted the strength and performance of Nasdaq’s Midpoint Extended Life Order, M-ELO, as well as solutions from other exchanges and new dark pools like PureStream. He added that “barring any drastic regulatory change, I think we’ll see that trend continue, if not accelerate.”
ETFs
“From the ETF perspective, we have seen so much growth in assets in ETFs. It’s been tremendous,” Mack said.
ETFs have surged in popularity, surpassing $1 trillion of inflows globally. The U.S. specifically saw inflows of $900 billion in 2021 and $7.2 trillion in assets under management, building upon inflows of $500 billion in 2020, according to ETF.com data provider FactSet.
“Even though that feels so big, I think we’re still in the pretty early innings here,” Mack said. “I think there’s a lot more to go, and you’re seeing a lot more adoption of the semi-transparent structure. You’re seeing more investment management companies coming out and saying, ‘Hey, we’re going to have an ETF version of many mutual funds.’ And if you think about how many mutual funds are in the market, it’s in the thousands. So, I think there’s a lot of runway here in the ETF space.”
Given this growing interest in ETFs, Mack noted that Nasdaq has invested in its exchange-traded product platform because “our hope is to help issuers grow that business across the industry.”
Fragmentation & Consolidation
In recent years, new exchanges have come to the markets, a trend that may continue into 2022.
“On the fragmentation side, I wouldn’t be surprised if we saw more execution venues come to market in 2022,” Mack said. “We’ve seen a couple of new ATSs, and we might see that continue.”
However, Mack believes that there may also be some consolidation.
“You may see some opportunities between exchanges to partner, get together or consolidate. There is value in scale when it comes to operating infrastructure for the market,” he said. “On the broker-dealer bank side, I think you might see some changes too. Consolidation will definitely be something very interesting to watch in 2022.”
Volume
Since the start of the pandemic, volume has reached record levels, and there are two reasons this heightened activity doesn’t appear to be going away any time soon, according to Mack.
“When we’re looking at it, we don’t really see a catalyst for change. We don’t see something where it’s going to really kind of shake something loose and slow everything down,” said Mack.
“Now, on the flip side, there are plenty of things that could be catalysts to drive it further,” Mack acknowledged, adding that the recent Federal Reserve announcement regarding rates will be a factor in the new year.
“There are lots of other macro things going on that could certainly drive volume and volatility,” Mack said. “So, if anything, we could see even a new higher level in 2022. But at the very least, I expect that to continue as we’ve been seeing for the last few months.”
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