Let’s consult Wall Street’s bestiary. You’re probably familiar with the term “Black Swan,” a sudden, unexpected catastrophe for which no one planned. But maybe you’re unfamiliar with “Gray Rhino,” which refers to a danger that’s obvious and yet underestimated or ignored.

As 2022 gets underway, the risks under our noses — e.g. Omicron, inflation, rising interest rates, China’s sputtering economy, and supply chain disruptions — pose the worst threats to investors.

I think the biggest Gray Rhino in the room right now is China. More about that in a minute. First, let’s examine some good news.

Research firm FactSet reported on January 18 that, according to the latest analyst consensus, the S&P 500 is expected to report year-over-year earnings per share (EPS) growth of 21.4% for the fourth quarter of 2021. That performance would represent a long winning streak for consecutive and robust year-over-year EPS growth (see chart).

As of this writing, among the 33 S&P 500 companies that have posted quarterly earnings results, about 70% have exceeded Wall Street’s expectations.

Now for the not-so-good news.

During Q4 earnings calls, corporate leaders have frequently cited supply chain woes, rising input costs, and labor shortages as concerns. Those factors have weighed on stocks year to date.

On Tuesday, the major U.S. stock indices fell as follows: the Dow Jones Industrial Average -543.34 (-1.51%); the S&P 500 -85.74 (-1.84%); the tech-heavy NASDAQ -386.86 (-2.60%); and the small-cap Russell 2000 -66.23 (-3.06%). Bond yields continued to climb and currently hover at two-year highs.

In pre-market futures trading Wednesday, U.S. stocks were edging higher. In recent weeks, “buy on the dip” has been the prevailing sentiment, largely due to solid corporate earnings.

The Middle Kingdom’s middling growth…

For a major clue as to how the stock market will perform in the coming months, look to China.

A threat to corporate profitability and global economic growth is China’s draconian response to the Omicron variant. The world’s second-largest economy is imposing strict curbs on business activity and individual movement, to pursue a zero-COVID policy.

Problem is, China plays a pivotal role in the global supply chain and its crackdowns are exacerbating supply disruptions. Beijing’s get-tough stance on the virus could further hurt its beleaguered economy, with global ramifications.

China’s National Bureau of Statistics reported Monday that the country’s economic output from October through December was only 4% higher than during the same year-ago period. That was down from 4.9% growth in the third quarter, July through September (see chart).

The country’s growth has stalled as home buyers and consumers lose confidence. China’s debt burden, epitomized by the default mess surrounding property developer China Evergrande Group (OTC: EGRNF), is another headwind.

Gone baby gone…

China also reported Monday that its birth rate fell for the fifth straight year in 2021, to hit an historic low. At the root of the decline is China’s decades-long one child policy. Although officially rescinded in 2016, the policy continues to affect social attitudes.

Other factors, such as the high cost of living and rising careerism among women, are dampening China’s birth rate as well.

With its aggressively promoted one child quota, Beijing wanted to get a handle on population growth. But top-down central planning has a way of causing unintended consequences.

In September 2021, worried about the falling birth rate, Beijing announced that couples could have up to three children. However, an increasing number of young people are refusing to have any kids, period. The Communist leadership has been hoisted by its own petard.

The declining birth rate represents a demographic crisis for China, because it’s a drag on economic growth and vitality. A lower birth rate means fewer low-wage workers, less tax revenue, and an aging population that requires ever-more support.

And that’s a problem for the whole world.

The World Bank estimates that for every 1 percentage point China’s gross domestic product (GDP) falls, roughly 0.6 percentage points are shaved off emerging markets’ GDP. That same drop in China’s GDP affects the developed world by about 0.2 percentage points.

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China will be highly volatile in the short term and the country’s struggles may be a portent of worldwide challenges to come.

Omicron bedevils the U.S. and other countries, but the uncompromising measures implemented by China’s autocratic leadership to fight the COVID variant are politically impossible elsewhere. Many European countries have struck a middle ground, by reimposing new restrictions but not calling for zero-tolerance policies.

The upshot: the persistent pandemic, hotter inflation, Federal Reserve tightening, and China’s decelerating economy pose a litany of risks to the markets. And those risks are hiding in plain sight.

To guide you through these perilous times, our analysts have compiled a special report of seven shocking investment predictions for 2022, and how to profit from them. To download your free copy, click here.

John Persinos is the editorial director of Investing Daily. Send your letters to: mailbag@investingdaily.com. To subscribe to John’s video channel, follow this link.