Though stocks staged a late rally to close out January, it was a less than scintillating start to the New Year to say the least. Tech led a general decline, with the Nasdaq falling 9.0%, its worst month in nearly two years (Bloomberg, January 31, 2022). Only 1/31’s 3.4% rally kept it from notching what would have been the worst January in its 50-year history (Reuters, January 31, 2022).

The S&P 500 and the Dow Jones did somewhat better, down -5.3% and -3.3% in the month, respectively (Wall Street Journal, January 31). Change was most definitely in the air as the calendar rolled over. Minutes of the Federal Reserve’s mid-December meeting, released on January 5, memorialized the shift in thinking at the central bank, suggesting that persistently high inflation and a very tight labor market could call for lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.”

Stocks fell on the day the news came out and stayed on the back foot for most of the month, as analysts projected a minimum of three and potentially as many as seven 25 basis point increases to the Federal Funds rate in 2022 (Reuters: January 28, 2022).

Covid continued to take a toll as well, and the impact began to show up in the economic data. December hiring fell to 199,000 jobs, well below expectations, though the unemployment rate also declined to 3.9%. Retail sales for December were off 1.9% from the month before (Bloomberg, January 7). Consumer confidence, as measured by the Conference Board index, slid a bit to 113.8 in January from 115.2 the month before.


Shades of 1982

The mid-month inflation read was also less than comforting, with the Labor Department reporting a 7.0% jump in the Consumer Price Index for 2021, the biggest 12-month rise since June 1982 (Bloomberg, January 12). This was offset in part by a strong 4Q GDP print, up 6.9% on an annualized basis (Bloomberg, January 27), and solid earnings. FactSet reported that of the 33% of S&P 500 companies announcing earnings through January 28, 77% had seen earnings surprise to the upside, bringing the forward price-to-earnings ratio for the index down to 19.2x at week’s end (Factset, January 28).

As is often the case, there was something for everybody in the month. Those who averred that 2021 was “too quiet” saw the CBOE Volatility Index (VIX) spike, starting the year at around 16, then rising to 31.96 on January 26 before dropping back down to just under 25 (Yahoo Finance, January 31). Optimists could point to an economy that entered the New Year still in growth mode. Equally important, there was evidence that the current wave of the coronavirus was starting to recede.

The last two years have seen many historical market patterns disrupted in the face of Covid and unprecedented levels of federal government spending. For now, however, a consensus is building around the path forward for the Fed, though that, too, is subject to change. As always, analysts will predict early and often. It may be that in 2022 we return to something like trend. But then again, we may not.


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Nasdaq is used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange. The Nasdaq Composite contains all of the companies that trade on the Nasdaq.

The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.

The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The GDP is the total of all value added created in an economy. The value added means the value of goods and services that have been produced minus the value of the goods and services needed to produce them, the so-called intermediate consumption.

Chicago Board Options Exchange's CBOE Volatility Index, a popular measure of the stock market's expectation of volatility based on S&P 500 index options.

Chicago Board Options Exchange's CBOE Volatility Index, a popular measure of the stock market's expectation of volatility based on S&P 500 index options.

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