Hello, everybody. It's Sam from Financial Samurai. And in this short episode, I want to share my thoughts on investing in stocks and in real estate for 2022. So mid-June 2022, we are finally seeing expectations for Fed rate cuts. Fed rate cuts, all the Fed has been talking about is trying to stem inflation by hiking.

They hiked by 75 basis points recently. Expectations are for another 75 basis points in July and maybe 50 basis points going forward to maybe 3.5% when it's all said and done. However, finally, mid-June, the expectations for Fed rate cuts are coming starting in 2023. Now why is that? Well, we saw the biggest drop in 10 years in the June US Purchasing Managers Index, the PMI.

And also finally, we saw a decline in oil prices in mid-June. Now a lot of people have argued that raising the Fed funds rate isn't going to do anything to stem oil prices, right? Ukraine, Russia, there's a problem there. So that's causing supply issues. And that's really true. The Fed funds rate isn't going to curtail oil prices, but it could create massive economic destruction, which will create demand destruction for oil and cause prices to go down.

So the key is for the Fed not to raise too aggressively as it's seeing the market do its job for them. And personally, I think the Fed isn't going to be able to go through with their Fed rate hike plans because things are selling off, demand is getting destroyed, oil prices are finally weakening, and I think it's only a matter of time before there are clear signs that inflation is peaking.

Once the July data comes out in August 2022, I think it's going to be pretty clear that inflation has peaked. And we might even get positive June inflation data out in July. If this is the case, 3.5% was likely the peak for the 10-year bond yield. And with less fear of a further rise in interest rates, risk appetite should increase, resulting in a rebound in equities in the second half of 2022.

So this thought process also implies 3,666 on the S&P 500 is the bottom of this latest bear market. Now, obviously, there are no certainties when it comes to investing, only thoughts and predictions. But if we look at the S&P 500 where it is right now at 3,900, the valuations are reasonable.

It's about 15.5 times price to earnings. The only problem is that Wall Street analysts have not started aggressively cutting their earnings estimates to account for a slowdown in the economy. So let's say the P/E multiple contracts by 7% to 8% to 14x, with a 10% downward revision in earnings to 226 for the S&P 500.

Then we're talking about 3,163 on the S&P 500 for another 14%, 15% downside. Is that possible? Definitely, that's possible. Is it likely? I don't think it's likely if inflation really is turning the corner in the second half of 2022. The other thing to think about is this. During downward times, during recessions and so forth, valuations actually go up because earnings go down.

And the price of the stock or the index doesn't go down as much as the decline in earnings. So you might want to think counter cyclically wise, where actually, we should expect valuations to go up if we're indeed going into a recession or a downturn, which is likely to happen.

So what's the bottom line for investing in equities in the second half of 2022? I'm a buyer. If the S&P 500 drops below 3,700 again, I will be more aggressively buying. I think with a 70 plus percent probability, 3,666 on the S&P 500 is the low. And as a result, the S&P 500 should close higher than 3,666 by the end of 2022, probably over 4,000.

That's my bet. So what about the real estate market? Well, if the equities market has reached a bottom and will rebound in the second half, how should one invest in the real estate market? The US median housing price has outperformed the S&P 500 by over 25% year to date because the median home price is up year to date.

However, the real estate market tends to lag the stock market by six to 12 months on the upside and on the downside due to a lot more friction when it comes to selling, to transacting. Think about it. You've got to find a new place. You got to pack. You got to list your property.

Go through that anxiety. Give up your low mortgage rate, right? 90 plus percent of mortgage holders have a mortgage rate below 5%. You've got to find an agent. You've got to pay those commissions, taxes and fees. It's a real pain to transact in real estate compared to investing in stocks.

Therefore, real estate buyers can probably find deals five to 10% off their January 2022 price comps over the next six months. But any more than a 10% discount, I think it's going to be really hard to find. You might be able to find it if you look hard enough and you bargain hard enough, but more than a 10% discount is just really difficult.

And if equities resume their upward trend and interest rates resume their 40-year downward trend by the second half of 2022 or definitely by the end of 2022, then the demand for real estate will likely rebound once again. As a result, if you're in the market for a new home or investment property, I say the time to look aggressively for deals is from now until winter.

Winter is my favorite time to look for deals because anybody listing during the winter holidays is likely more motivated, more desperate than those who can just sit back and wait until better weather, better demand in the spring. In conclusion, I see the S&P 500 rebounding in the second half.

Maybe it goes to 4200, 4300. That's the way I'm positioning things. In terms of real estate, the opportunity is now over the next six months to find deals as interest rates are still high and there's a lot of uncertainty. But if interest rates and mortgage rates come down, that demand is just going to pick right back up again.

All righty. I would love to hear your thoughts about the stock market and the real estate market. I'm going to be busy over the next three or four weeks marketing Buy This, Not That, How to Spend Your Way to Wealth and Freedom, my book. You can buy it at financialsamurai.com/btnt.

I'm going on a lot of great podcasts. Shout out to the Tropical MBA Podcast and also Noah Kagan. I really enjoyed talking to you guys. So I'm going to be busy, but I'm still going to be writing and recording, so I will catch you guys around.