Despite an uptick in volatility over the past couple of weeks, it’s been another slam-dunk year for the stock market. Through Tuesday, Dec. 7, the benchmark S&P 500 ( ^GSPC 0.95% ) had gained nearly 25%. To put this figure into context, the widely followed index has averaged an annual total return, including dividends, of around 11% since 1980.

There’s no mincing words: It’s been a good year for many big-name companies.

But history also shows us that stock market crashes and double-digit percentage corrections are commonplace. As we get ready to steam forward into a new year, the following seven factors stand out as the biggest threats to the stock market in 2022.

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1. The Federal Reserve panicking over inflation

Arguably the biggest concern for Wall Street in 2022 is how the Federal Reserve handles rapidly rising inflation (the rising cost for goods and services).

Throughout 2021, Federal Reserve Chairman Jerome Powell has described inflation as “transitory.” But that terminology changed this month, with Powell recognizing that higher prices could stick around. Although some level of inflation is expected in a growing economy, the 6.2% increase in the Consumer Price Index for All Urban Consumers in October marked the largest jump in 31 years. Sustainable price hikes of this magnitude will eat up wage increases, gobble up consumer and enterprise discretionary income, and could halt the economic rebound from the coronavirus-induced recession in its tracks.

The nation’s central bank may be forced to raise its federal funds target rate, which influences interest rates, earlier than anticipated. The concern is that if the Fed has moved too slowly, or provided too much kindling under the U.S. economy with its historically low lending rates and bond-buying program, it could be forced to aggressively hike lending rates. Should that happen, growth stocks would be in big trouble — and so would the S&P 500, which has relied on growth stocks for most of its gains over the past 12 years.

Image source: Getty Images.

2. Political gridlock

When in doubt, keep politics out of your portfolio. But every so often, it’s impossible to ignore how the actions in Washington, D.C., can affect the outlook for your investments. Yet the biggest worry in 2022 isn’t what legislation might come out of Washington. Rather, it’s what’s not getting done.

In the upcoming year, lawmakers will have to tackle another federal funding bill by Feb. 15. We’ll also be navigating our way through midterm elections in early November, and politicians could be embroiled in another debt-ceiling debate near the end …….

Source: https://www.fool.com/investing/2021/12/11/the-7-biggest-threats-to-the-stock-market-in-2022/