taylor: let's take a look at how these equity markets performed -- opening up the first day of 2022 with a record high. other tech indices not so much. apple and tesla at a record high. bring across the screen. look at the story and it was all about the yield curve. it's a little flatter, but we are trying to understand what rising rates on the long end means for the market and what it means for the federal reserve. that's the market wrap. "what'd you miss?" starts now.

caroline: today marks the first trading day of 2022. as the new year begins, the prevailing message across wall street and beyond is positions are still looking pretty good. we just got another record high but the riproaring rises equities powered by the reopening. over the next half an hour, we will be digging into what comes next for markets. after a record-setting second year and the opportunities that lie ahead. first, let's look at investment. romaine: let's take a listen to some of our guests discussing the expectations. >> this pandemic won't be something that is finished with a line in the sand. we are still very much in the midst of the storm and some of the issues that played in 2021 will continue. >> about the service sector

outlook in the short-term seems to be continuing with its strategy. >> the chinese stock market is very volatile and not for everyone. we see that second half of the year, the run-up -- >> some of the stocks that in a fitted most from the fear of missing out, you will see a pullback there. >> the difficulty is we are looking at earnings growth that is petering out. it's not going to be negative but it's not going to be as strong as years gone by. >> that will be a big rotation as we start this year where a lot of underperformers rally and outperform what was the end of last year's winner. taylor: that is the topic of today's bloomberg big take. we've collected and here to walk us through the highlights -- the highlight certainly was

inflation being the big concern. covid-19, almost nothing. what stood out for you? >> it seem like that was the thing to focus on -- inflation. this was a gigantic effort, they went throughout 500 outlooks. inflation was mentioned 224 times where's covid was only mentioned 36 times. inflation is clearly the key risk in 2020 and every outlook bloomberg looked at, inflation was an outlook -- an element in every scenario. romaine: inflation continues to be on top of everyone's mind and as you talk about inflation, you have to talk about the fed, monetary policy and whether jerome powell made some sort of policy mistake. what do people think? katie: fidelity said the margin for error will be fine, leaving

the stakes high. that's the tight rope they are trying to walk, trying to get inflation, which wall street and everyone else is worried about right now, trying to get that under control and balance that with not weighing on growth too much. that fear, that policy error there, if you look at this incredible flattening we have seen with long and yields coming down -- not today but those short and rates rising, that is the worry express in the bond market. looking across these forecasts, that looks like it is front and center and comes to concerns for wall street. caroline: crypto -- bitcoin -- how much are we expecting an inflation hedge coming into those assets? are we thinking the fed has inflation in its sights and you don't need to be part of the new digital assets? i don't see much attention being paid by the banks. katie: i'm glad you brought that

up because it seems like crypto did not get a lot of respect in the year ahead outlook. a jp morgan asset manager saying despite media hype and sharp price rises, crypto is not established as a portfolio asset. even with a lot of bitcoin and crypto advocates seeing its praises saying it is an inflation hedge, we don't have the history to back that up yet. this will had your portfolio against coronavirus prices -- we did not see anyone in these elements we looked at and there were 500 recommending it as such. romaine: helping to kick off the conversation on this day. we want to get more insights on what to expect in the market. gary schlossberg joining us right now from san francisco. let's start off with the idea about where we are in the economic cycle because if you are trying to divine where the market is going to go, you have

to have some conviction about where that economic cycle is. gary: i would characterize 2022 -- it is only the beginning of the year, as a year of transition. another way of putting that is something similar to what we had in 2021, but a good deal more moderate. we are looking for growth to start us strong. we could see the omicron variant undercut economic growth in the first quarter but there will be some catch up in the second quarter. it will be stronger than normal economic growth winding down toward the latter part of the year as the economy's growth rate slowly converges with its long-term average. still finishing above that long-term by about a percentage point, but more moderate growth over the course of the year. inflation more of an issue, taking the training wheels off the fed with economic policy. we don't have the same fiscal stimulus. we may have some but not to the degree we had a year ago.

and monetary policy will provide the tailwind that it did over the course of 20 between when either. all of that makes for a good year, not a spectacular ear. a good year -- not a spectacular year. a good year, perhaps in the single digits. growth in the low double digits but not as strong as what we saw in 2021. and the risks so much greater, which implies the potential for greater volatility in the market. taylor: you talk about inflation which has also been a mobile story. covid-19 has been a global story. and yet unsynchronized growth. where the opportunities as you are thinking about the u.s. and big outperformance? gary: we still like the u.s. market. that's not to say there are not

opportunities overseas, but the u.s. market will lead in economic growth. with the dollar strong, that creates some issues for parts of the emerging market space. we create a little headwind for commodity prices, the equivalent of dollar debt payments, local financial market liquidity not quite as strong. but when you look at the u.s., we think we will be the leader in economic growth, a more vibrant economy, and for that reason, we continue to favor the local market over markets overseas. caroline: drill into the local market on a day when we see apple hit a $3 trillion market cap and a record high tesla. is big tech ever going to fall out of favor? we all at some point have to bet on value. gary: you would think not necessarily collapsing on its own weight but with the run-up

of valuations and extort gains we have seen building on a large base, you where expect to see leadership or at least the gains in the market to become more broadly based. late last year, the narrowness in the rally was a little bit of a cause for concern, but going forward, we look for a more broad-based in the market. it will be the mid-cap sectors, the quality stocks with the added balance sheet strength. that would bode well for mega caps as well. more moderate gains over the course of the year. romaine: how much have you factored in fiscal policy? last year, there was both optimism and concern over build back better and some of the other initiatives -- the idea there was a lot of debt and concerns about a tax hike being

proposed to pay for that. as we speak today, that does not appear to be on the table. gary: no, but we are still pretty optimistic about something being passed. sometime during the first quarter of the year. it's not going to have the fiscal stimulus that was provided a year ago. the size of the package stretched out over 10 years rather than frontloaded spending and it will be financed to a greater extent. in the out years, a little more backloaded than spending. the bad news is we are not going to get quite the same stimulus but with inflation an issue, it is probably just as well. the added good news for the financial markets, treasury borrowing is coming off a bit and we expect to moderate, remaining high but moderating

from what we saw a year ago. the federal reserve pulling back on securities that can be accommodated to a greater extent by the reduced supply of treasury debt. taylor: we were speaking earlier about not only fiscal stimulus but monetary stimulus and the risk of a policy error. you could have a fed with no rate hikes because maybe inflation is not an issue or maybe more hikes than necessary? which do you think is a greater risk? gary: i think the fed is forced into a catch-up situation where the fed stays high and elevated and that's not what we were expecting. we do expect to see it decelerating and the trajectory to be fairly flat, but a greater risk is inflation remains there

and the federal reserve is forced into a catch-up situation. if the economy begins to wind down more than expected -- say the omicron variant has a greater impact on the economy, the fed could find itself between a rock and a hard place because it's more disruptive for growth than inflation. it could aggravate inflation by adding to goods demand and disrupting the supply chain even more than it has been. more problems for the federal reserve, more likely they will be moving more aggressively as a risk later in the year if inflation stays more elevated than expected. caroline: feels like a healthy dose of deja vu. thank you and stay well. a wealth fargo investment institute stretches. we will dig deeper into

expectations, particularly in the area of income, especially after the big news from treasury. this is bloomberg. ♪

romaine: first trading day of the year and we are focused on the year ahead, what to expect over the next 12 months. taylor is taking a look at the performance of corporate debt.

taylor: it did not do so great compared to the s&p 500 last year which was 25%, 27 percent. treasuries were one of the worst performers. corporate debt did a little better, but when we are looking at the bloomberg corporate unlevered index, still off about 1%. this shows this rotation, how can you not be in these equity markets and it was the case last year. with yields rising finally on the 20 year, is that a relatively attractive opportunity? caroline: so many that already lost the loaner money. i'm thinking of high-profile hedge managers out there that really lost their shirts on the back of this volatile bond market. ashok bhatia is a deputy cio for fixed income and it's great to have you on our show. talk about the volatility we see in the treasury market today of

all days. what yields moves and it something we are just getting used to for 2022? ashok: we think this is the big theme for this year. for the last two years, we have had central bank policy being one directional. purchasing bond and maintaining interest rates at zero or negative rates. in the case of the ecb, the emergency programs are being reduced and this year is going to bring hikes across the developed market and we've seen a little bit of a tease for what this year will look like for emerging markets. in 2021, we saw hike cycles started in place like brazil, mexico, poland, and this year, it will be the turn for the u.s. and bank of canada -- these banks will be raising rates and that will be one of the big drivers of modern volatility

this year. the last point is central banks are not aiming to throw the global economy into a recession or engineer a slowdown. this is about hiking and policy adjustments to take back some of the emergency stimulus put injuring covid. the and should still be a robust environment for risk, but we think it's going to be bumpier than it was last year. romaine: that's a good point to make about removing the emergency stimulus rather than overall monetary policy. i'm curious when you look at some of the deals we had last year in the corporate space, how much of that if not fueled, under in by rock-bottom interest rates -- does that tightening or removal of the emergency accommodation make the environment less attractive for

new issuers or investors? ashok: i think for bond investors, you make an important point, which is last year and the year before, these low rates allowed companies to rejig their balance sheets. it was about terming out debt and reducing near-term maturities, perhaps moving away from floating-rate exposure or fixed-rate exposure. but these were friendly for bondholders. we saw more high-yield issuers upgraded to investment grade than downgrade. but we do think it will be a bit of a change -- there will be an uptick in merger and m&a activity. it's an open activity whether companies are going to start leveraging up. for bond investors, to improving

credit quality. we have seen hints this year will be an uptick in m&a activity. that's a modest pressure for investment grade spreads in particular. taylor: tell us more about spreads and credit quality. where is there a spread for opportunity further and is there an upgrade cycle we see? we've heard there are going to be all these zombie companies but the fiscal stimulus bailed us out. where are we in that cycle? ashok: on the upgrades, there are upgrades coming in the high-yield market. it's going to be more of a multiyear cycle than a big bang, but there is underlying strength

to move into triple b. i think on your question about spreads, there's is not a lot of room for tightening. maybe it inside a little 80 a month or so ago. there is some room, but our advice is fixed income portfolios and that is a 2%-4% return environment for a lot of these markets. the places for more significant spread compression are in the emerging markets. the high-yield emerging-market space, big diversions between investment grade and high yield em and local -- those are the places where you can earn mid to high single digit returns but

fixed income is going to be pretty low yield, pretty low return environment. caroline: to that point, how convinced are you that fixed income remains part of people's first -- people's portfolio? ashok: when you structure these portfolios, we see significant demand for fixed income. a lot of it is global. there are international investors that you can offer 3% to 4% yield for an investment grade portfolio and that fits a lot of their institutional needs. given the equity environment and the ability to use fixed income to lock up those kinds of returns, that is important for them. for a lot of overseer european

investors, u.s. fixed income being a low yield from the returns we are seeing the equity market but it is still attractive. a lot of insurance companies, there's a lot of regulated entities that still need fixed income. i suspect we are going to see robust demand despite the returns or yields on offer right now. taylor: the great reddish pound -- negative 12 basis points? stay with us. we get final thoughts. we have a few final thoughts after that long conversation. we will be back next. this is bloomberg. ♪

romaine: kicking off the new year with a look ahead with what people are expecting for the new year and i don't know if you would call it incentive but a lot of people are taking a look at rates. caroline: have a great evening.

announcer: from the heart of where innovation, money and power collide -- in silicon valley and beyond, this is bloomberg technology with emily chang. emily: i'm emily chang in san francisco and this is bloomberg technology. a hot start to 2020 two for tesla -- shares surging after the electric car record smashed earlier records r li