January Market Recap
February 1, 2022
Whoever said “January is the Monday of months” certainly had it right about 2022.
The stock market’s opening act of the new year left its audience running for the exits. Sobering realities of 7% inflation and a Federal Reserve certain to implement less favorable monetary policy hit investors like a Minnesota wind chill. The S&P 500 lost 5.3%, its worst month since the pandemic panic of March 2020. It was the worst January performance for stocks since 2009, when the S&P fell 8.6%.
Volatility spiked as the selling intensified. The Chicago Board of Exchange Volatility Index (“the VIX”) reached its highest mark in a year. With that came extreme intraday swings. The average spread between the S&P 500’s daily highs and lows in January was 2.06%, more than twice the average daily spread last year (0.97%). Put another way, a “normal” trading day last month saw stocks fluctuate the equivalent of 730 Dow points.
All but one of the 11 sectors in the S&P 500 were negative. Consumer Discretionary (-9.7%) and Real Estate (-8.5%) lost the most. The only sector to finish positive was Energy (+19%), which delivered remarkable outperformance thanks in part to sharply higher oil prices. Financials (-0.1%) also weathered the storm relatively well.
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If you’re looking for a silver lining, the good news is that equities finished the month on a high note. The S&P 500 gained 4.4% in the final two days of January. At its low point on January 24, the S&P had fallen 12.4% from its intraday peak in only 13 trading days.
The NASDAQ was battered even more, falling 17.4% over the same period and finishing January with a 9% loss overall. Dating back to the pandemic lows two years ago, mega-cap technology companies have been some of the market’s best performers. Many of those same companies proved especially vulnerable last month.
Consensus expectations on Wall Street suggest the Federal Reserve will raise interest rates five times in 2022. Perhaps Fed Chair Jerome Powell can successfully navigate these troubled waters, but it will require a delicate balance between staving off inflation and appeasing investors who have grown accustomed to historically friendly monetary policy.
It was the minutes (notes) from the Fed’s December meeting, released on January 5, that indicated a March hike was coming and sent stock prices southward. Joe Biden then applied some political pressure on January 19 when the President stated that fighting inflation is the job of the Federal Reserve. “Given the strength of the economy and the pace of recent price increases, it’s appropriate to recalibrate the support that is now necessary,” Biden said.
Year-over-year inflation clocked in at 7% in January, up from 6.8% a month earlier and the highest such reading since 1982. The national unemployment rate fell below 4%. When you consider the Fed’s official mandates to promote “maximum employment, stable prices, and moderate interest rates” it becomes obvious why a shift in policy is upon us.
If we look beyond inflation and the Fed, there are still reasons for optimism. The US economy grew at an annualized rate of 6.9% in the fourth quarter. On an inflation-adjusted basis, American GDP grew 5.7% overall last year, the strongest annual growth since 1984.
Corporate earnings also continue to impress. With roughly one-third of S&P 500 companies already reporting, fourth-quarter earnings are on pace to increase 24% from a year earlier. If we hit that mark, it will be four consecutive quarters with earnings growth of 20% or more.
10-year US Treasury bonds finished January yielding 1.78%, the highest in two years. It was summer 2019 when 10-year Treasuries last eclipsed 2%, a threshold that holds symbolic significance and could provide short-term resistance.
Higher bond yields are not just an American trend. The 10-year German bund yield ended January above 0% for the first time since May 2019 (no, that’s not a typo). The 10-year Japanese Government Bond also rose to a five-year high.
International equities outperformed US stocks in January. Non-US Developed equities (measured by the MSCI EAFE Index) fell 3.6%. Emerging Market stocks, which lagged far behind US stocks in 2021, were flat.
West Texas Intermediate Crude oil jumped more than 17% last month. That corresponded with a 15% increase in US gasoline prices, which now average $2.55 per gallon nationally. Gold prices fell 1.7%.
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
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MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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