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Traders concern inflation essentially the most in 2022 and see decrease inventory market returns, a CNBC ballot reveals

Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York, December 17, 2021.

Andrew Kelly | Reuters

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Wall Street investors believe inflation will remain a major drag on markets in 2022 and stocks will generate sluggish returns, according to a new CNBC Delivering Alpha investor survey.

We interviewed approximately 400 chief investment officers, equity strategists, portfolio managers, and CNBC money administrators about their position in the markets for the remainder of 2021 and next year. The survey was conducted this week.

More than half of those surveyed said inflation was their top concern for 2022. Thirty percent said the Fed's rate hikes at the wrong time were their top concern, while 17% said the economic impact of an ongoing pandemic their greatest concern.

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For months, investors have been watching various inflation data points hit their highest levels in decades. The consumer price index, which measures the cost of a large basket of goods and services, rose 6.8% year-on-year in November, its highest level since June 1982.

The Fed signaled that it would take aggressive monetary policy action in response to rising inflation, including accelerating its monthly bond purchases. Fed officials see up to three rate hikes over the next year.

"There are serious headwinds to be concerned about," said Brad McMillan, chief investment officer for the Commonwealth Financial Network, in a press release. "Inflation is at its highest level in decades. Problems in the supply chain seem insoluble. If these problems get worse, they could wreck the recovery."

The S&P 500 is up over 27% to a record high this year as the market climbed a wall of worries from soaring inflation to the ongoing pandemic to easing monetary stimulus. For 2022, investors expect earnings to be much lower.

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More than 50% of respondents expect the S&P 500 to rise less than 10% in 2022. Almost 18% expect the market to produce another double-digit year, while 10% see stocks flattening out.

According to the results of the survey, stocks are still the first choice of investors among the various asset classes.

"While inflation is a problem and a source of volatility, it also makes stocks the most compelling choice of major asset classes," said Tony DeSpirito, chief investment officer of U.S.A. Fundamental Active Equity at BlackRock, in a press release. "Individual companies will prevail differently, which underscores the importance of a stock-based approach."

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When it comes to stock preferences, 35% of respondents said they prefer financial stocks and 27% like cyclical stocks that are benefiting from the economic recovery. Technology stocks generally became less favorably priced with investors.

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