Monthly Market Insights | January 2022
Stocks rallied in December as early data suggested that the health impact of the Omicron variant was less severe than initially feared.
The Dow Jones Industrial Average picked up 5.38 percent, while the Standard & Poor’s 500 Index gained 4.36 percent. The Nasdaq Composite lagged, climbing 0.69 percent.1
Stocks got off to a volatile start in December as investors worried about Omicron’s transmissibility and severity. Markets also were rattled by Fed Chair Jerome Powell’s testimony to Congress that the economy was strong enough to allow the Fed to move up its bond purchase taper schedule.
While investors were expecting the Fed’s news, Powell’s testimony generated added uncertainty over just how sharp and rapid that pivot would be.
At its mid-December meeting, the Federal Open Market Committee said that it would quicken its tapering of monthly bond purchases from $15 billion a month to $30 billion a month. This acceleration in tapering meant that asset purchases by the Fed would likely end by March 2022.2
The Fed further signaled that it may consider up to three rate hikes, the first of which would likely occur sometime after bond tapering was completed.2
With the year-end fast approaching and investor sentiment on Omicron’s economic impact becoming less fearful, investor attention turned to whether the market would enjoy a "Santa Claus Rally."
The Santa Claus Rally is a seasonal pattern in which the market generally rises in the period following Christmas through the first two trading sessions of the new year. Since 1950, the S&P 500 has gained an average of 1.3 percent during this period and generated positive returns about 67 percent of the time since 1993.3
Cementing a Solid Year
This year, stocks rallied following the holiday but lost some momentum in the final two trading days. Nevertheless, stocks ended the year near all-time highs, cementing a solid year of gains for investors.
All industry sectors posted positive performances last month with gains in Communications Services (+4.51 percent), Consumer Discretionary (+0.24 percent), Consumer Staples (+8.96 percent), Energy (+1.41 percent), Financials (+3.06 percent), Health Care (+9.06 percent), Industrials (+4.55 percent), Materials (+6.57 percent), Real Estate (+9.09 percent), Technology (+3.56 percent), and Utilities (+8.45 percent).4
What Investors May Be Talking About in January
In the month ahead, investors are expected to focus on fourth-quarter gross domestic product, scheduled for release on January 28.5
The Federal Reserve Bank of Atlanta, which models estimated GDP growth in real-time, said in late December it expects 7.6 percent growth. A strong GDP would confirm expectations of a rebound from the Delta variant-induced slowdown in the third quarter.5
Fourth-quarter corporate earnings season will also kick off in January. According to FactSet, a financial data provider, consensus estimates are for a 20.9 percent growth in corporate earnings.6
The extent that earnings disappoint or exceed expectations may drive how markets view current stock price valuation levels.
Despite higher Omicron infections in Europe and isolated shutdowns in China, the MSCI-EAFE Index advanced 4.99 percent in December.7
Major European markets rebounded sharply from November losses, with gains in France (+6.43 percent), Germany (+5.20 percent), and the U.K. (+4.61 percent).8
Pacific Rim stocks had less impressive gains. Japan’s Nikkei index rose 3.49 percent while Australia’s ASX 200 gained 2.60 percent. China’s Hang Seng index lost 0.33 percent.9
Gross Domestic Product (GDP)
The final reading of GDP growth showed an upward revision to 2.3 percent from its prior estimate of 2.1 percent.10
The employment picture was mixed in November. Nonfarm jobs increased by a disappointing 210,000, but the unemployment rate fell to 4.2 percent as almost 600,000 Americans joined the workforce.11
Retail purchases rose 0.3 percent, which was below expectations. The slight increase lends credence to the idea that October’s big jump was partly due to Americans buying early in response to possible inventory shortages.12
Industrial production increased by 0.5 percent, reaching its highest level since January 2019. Manufacturing output was strong, rising 0.7 percent on a solid rebound in the auto sector.13
Housing starts increased 11.8 percent in November, which was above the consensus estimate of 3.0 percent.14
Existing home sales climbed 1.9 percent from October, though they slipped 2.0 percent from November 2020.15
New home sales rose 12.4 percent, reaching a seven-month high. Strong demand lifted the median sales price 18.8 percent from a year ago.16
Consumer Price Index (CPI)
Consumer prices jumped at a rate not seen in nearly 40 years, rising 0.8% from the previous month and 6.8% from a year ago. It is the sixth consecutive month that inflation has exceeded 5%. Core inflation (excluding the more volatile food and energy prices) came in lower but still posted its sharpest jump since 1991.17
Durable Goods Orders
Orders of goods designed to last three years or more rose 2.5 percent, driven by a strong increase in commercial aircraft orders.18
After the two-day December meeting of the Federal Open Market Committee (FOMC), the Fed announced that it would be speeding up the pace of reductions in its monthly bond purchase from the $15 billion per month announced in November to $30 billion per month, effectively ending asset purchases by March 2022. It also signaled that there may be as many as three increases in short-term interest rates in 2022.19
"In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook," according to the Fed’s prepared statement.
"The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."20
By the Numbers: Polar Bears and Plunges
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.
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3. CMEGroup.com, December 26, 2020
4. SectorSpdr.com, December 31, 2021
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6. FactSet.com, December 2, 2021
7. MSCI.com, December 30, 2021
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