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MONTHLY MARKET INSIGHTS | FEBRUARY 2022

February 03, 2022
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U.S. Markets

Rising yields, elevated inflation, and a hawkish-sounding Fed took turns rattling the stock market in January, with technology-heavy Nasdaq particularly hard hit.

The Dow Jones Industrial Average dropped 3.32 percent, while the Standard & Poor’s 500 Index fell 5.26 percent. The Nasdaq lost 8.98 percent.1

What lies behind us and what lies before us are tiny matters compared to what lies within us.

Ralph Waldo Emerson, American essayist and poet

Fear of the Fed

Anxiety about the Federal Reserve’s pivot from its accommodative monetary policy toward monetary normalization hung over the market all month.

Early in the month, the Fed released the minutes from its December meeting, which suggested a more hawkish tone than what investors were expecting.

Inside the Fed minutes, the first update that unsettled markets was the likelihood of an interest rate increase in March, which would be sooner than many had expected. The second update that upset investors was news that the Fed was considering reducing its balance sheet, a step toward tightening that had not been widely anticipated.

More from the Fed

Following its January meeting, Fed Chair Powell indicated that reducing the balance sheet might come at a faster pace than the balance sheet reductions in 2014 and 2018.

Bond yields trended higher in response to Powell’s news. Higher yields hurt technology and other high-valuation companies the most.

Economic Recovery

Amid the stock market turbulence, the underlying fundamentals showed a solid economic recovery. Unemployment fell, housing was strong, and fourth-quarter Gross Domestic Product rose beyond consensus expectations. But hot inflation tempered enthusiasm.

Earnings Underway

A strong start to the fourth quarter earnings season caught investor's attention. Of the 33 percent of the companies comprising the S&P 500 Index that reported by month’s end, 77 percent reported earnings above Wall Street estimates. While the total “beat” percentage was higher than average, the amount by which earnings actually beat analysts’ estimates was by a narrower margin.2

Stocks rallied sharply in the final two sessions, taking the edge off an otherwise challenging month for investors.

Sector Scorecard

Except for Energy (+17.07 percent), all industry sectors closed the month with losses, including Communications Services (-8.27 percent), Consumer Discretionary (-13.23 percent), Consumer Staples (-1.05 percent), Financials (-1.33 percent), Health Care (-7.07 percent), Industrials (-5.54 percent), Materials (-7.70 percent), Real Estate (-8.48 percent), Technology (-10.09 percent), and Utilities (-3.86 percent).3

U.S. Market Recap for January 2022MMI logo
S&P 500
red down arrow-5.26
Month (%)
red down arrow-5.26
Year-to-Date (%)
Nasdaq
red down arrow-8.98
Month (%)
red down arrow-8.98
Year-to-Date (%)
Russell 1000
red down arrow-5.72
Month (%)
red down arrow-5.72
Year-to-Date (%)
10-Year Treasury
green up arrow1.78
Month (%)
rgreen up arrow0.27
Year-to-Date (%)
Yahoo Finance, January 31, 2022. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

What Investors May Be Talking About in February

With the fourth quarter earnings season well underway, investors will continue to focus on earnings reports throughout the month. Expect investors to continue to focus on quarterly reports from high-valuation growth companies.

Earnings from such companies may have a high bar to clear with investors amid expectations for a continued climb in bond yields.

As investors saw in January, these high-multiple stocks can come under pressure as bond yields trend higher. The reason for this is twofold. First, when rates tick up, it’s more difficult to forecast future earnings. Second, higher rates may increase a firm’s cost of capital.

World Markets

Overseas markets fell in tandem with the U.S., as the MSCI-EAFE Index sank 5.76 percent in January.4

Major European markets were broadly lower, with losses in Germany (-2.60 percent) and France (-2.15 percent). The U.K. was the only major European exchange that saw a gain (+1.08 percent).5

Pacific Rim markets were mostly down as well. Australia lost 6.35 percent and Japan dropped 6.22 percent. Hong Kong bucked the trend, gaining 1.73 percent.6

World Market Recap for January 2022
EMERGING MARKETSJANUARY (%)YEAR-TO-DATE (%)
Hang Seng (China)green up arrow1.73green up arrow1.73
KOSPI (Korea)red down arrow-10.56red down arrow-10.56
Nikkei (Japan)red down arrow-6.22red down arrow-6.22
Sensex (India)red down arrow-0.41red down arrow-0.41
Jakarta Composite (Indonesia)green up arrow0.75green up arrow0.75
Bovespa (Brazil)green up arrow7.22green up arrow7.22
IPC All-Share (Mexico)red down arrow-3.64red down arrow-3.64
MERVAL (Argentina)green up arrow8.87green up arrow8.87
ASX 200 (Australia)red down arrow-6.35red downarrow-6.35
EUROPE  
DAX (Germany)red down arrow-2.60red down arrow-2.60
CAC 40 (France)red down arrow-2.15red down arrow-2.15
Dow Jones Russia Index (Russia)red down arrow-10.06red down arrow-10.06
FTSE 100 (United Kingdom)green up arrow1.08green up arrow1.08
Yahoo Finance, January 31, 2022. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Indicators

Gross Domestic Product (GDP)

The rate of economic expansion in the fourth quarter exceeded economists’ expectations, rising 6.9 percent—triple the growth rate of the third quarter. While the headline number was strong, two concerns emerged: Much of the growth was due to inventory build-up, and the price index for personal consumption expenditures (an inflation measure) accelerated from the third quarter, climbing 6.5 percent.7

Employment

Hiring slowed in December, with employers adding just 199,000 jobs—well below consensus estimates. The unemployment rate dropped to 3.9 percent, while wage growth rose 4.7 percent from a year ago, signaling a tight labor market. The December jobs report reflects data prior to the start of the Omicron variant spread in late December.8

Retail Sales

Retail sales declined by 1.9 percent. The spread of Omicron and early consumer holiday buying in response to possible inventory shortages dampened spending in December.9

Industrial Production

Industrial production contracted 0.1 percent. This dip was attributed to a decline in auto production and a drop in utility output due to warmer weather.10

Housing

Housing starts rose by 1.9 percent in the final month of 2021, helped by the warmest December on record. This increase occurred despite rising lumber prices and higher mortgage rates.11

Existing home sales slipped 4.6 percent, hampered by a higher year-over-year median sales price (+15.8 percent) and tight inventory.12

New home sales surged by 11.9 percent. With new homes, higher mortgage rates did not discourage buyers.13

Consumer Price Index (CPI)

Consumer prices rose 0.5 percent in December, with inflation climbing 7.0 percent from a year ago. This year-over-year increase was the highest since 1982.14

Durable Goods Orders

Durable goods orders declined 0.9 percent to their lowest level since April 2020, reflecting the impact of the Omicron surge.15

The Fed

The Federal Open Market Committee (FOMC) at its January meeting left rates unchanged, though officials signaled that rates would likely be raised at its next meeting in March.

The Fed also approved one last round of bond purchases, bringing quantitative easing to an end by March.

The FOMC did not offer details on its plan to shrink the Fed’s balance sheet. But Fed Chair Powell indicated that shrinking the Fed’s asset holdings may occur at a faster rate than in past periods of balance sheet reductions.16

By the Numbers: Valentine's Day

$23.9 billion17

Total Valentine’s Day spending projected for 2022

53118

Types of Valentine's Day greeting cards offered by Hallmark in 2021

26 percent18

Share of marriages that began online

$2.3 billion18

Amount spent on Valentine's Day gift cards

$175.4118

Average amount spent per adult on Valentine's Day

$2.2 billion18

Amount celebrators plan to spend on candy for a loved one

$6.2 billion18

Amount celebrators plan to spend on jewelry for a loved one

$2.3 billion18

Amount celebrators plan to spend on flowers for a loved one

9 million18

Average number of marriage proposals made on Valentine's Day

43 million18

Projected number of Americans who will receive an unwanted Valentine’s gift this year


 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.

The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange.

Please consult your financial professional for additional information.

Copyright 2022 FMG Suite.

1. WSJ.com, January 31, 2022

2. Insight.FactSet.com, January 28, 2022

3. SectorSpdr.com, January 31, 2022

4. MSCI.com, January 31, 2022

5. MSCI.com, January 31, 2022

6. MSCI.com, January 31, 2022

7. WSJ.com, January 27, 2022

8. WSJ.com, January 7, 2022

9. WSJ.com, January 14, 2022

10. MarketWatch.com, January 14, 2022

11. CNBC.com, January 19, 2022

12. CNBC.com, January 20, 2022

13. USNews.com, January 26, 2022

14. WSJ.com, January 12, 2022

15. CNBC.com, January 27, 2022

16. WSJ.com, January 26, 2022

17. Wallethub.com, February 1, 2022

18. Wallethub.com, February 1, 2022