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January 2022 Economic Dashboard

January was an eventful month in financial markets. Fourth quarter real GDP growth came in at 6.9% as businesses replenished inventory and consumer spending remained strong despite less government stimulus. The Federal Reserve continued to accelerate plans for interest rate hikes, signaling a likely first hike in March to combat inflation. How inflation responds to initial interest rate increases will provide insight into how high the Fed might take rates.

The S&P 500 posted its worst month in nearly two years, declining 5.3%, despite a bounce in the final trading days. Bonds were a poor place to hide from the stock market selloff as surging yields pushed down bond prices. Rising yields also led to leadership changes within the stock market. Value stocks outperformed growth stocks by a wide margin as higher rates give investors less patience for distant future earnings. The Russell 1000 Growth Index lost 8.6% on the month to the Russell 1000 Value Index’s 2.5% decline. High-quality, blue-chip stocks (profitable, stable companies) outperformed more speculative names as risk-seeking sentiment waned. And escalating geopolitical risks (Russia/Ukraine, Taiwan, Iran) powered energy stocks to double-digit gains, while the tech-heavy Nasdaq Composite lost nearly 9%.

January serves as a good moment to reflect on market expectations following nearly two years of volatility predominately occurring to the upside. Market declines of 5% or more are not infrequent, as you can see in the chart below. In fact, they happened in more than one of eleven calendar months over the last 30 years.

-Jared J. Ruxer, M.S.

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