Market Review - January 2022
Source: Zephyr Style Advisor
January 2022 was a challenging month and a reminder that market volatility is inevitable, even “normal.” Higher interest rates, ongoing supply constraints, and spiking Omicron infections led stock markets lower. The selloff was sharpest in the US (-5.2%) led by technology stocks that had benefited the most from ultra-low interest rates. The S&P 500 index recorded its worst performance since March 2020¹. International stocks also fell, but not quite as much as the US market. There were some notable exceptions abroad: Latin America gained 7.4% and UK equities climbed 1%². Overall, developed international markets were weaker (-4.8%) than emerging markets (-1.9%).
Most sectors in the US equity markets struggled, with the exception of energy (+19.1%). Energy stocks benefitted from rising crude oil prices. Six sectors fell more than 6% with consumer discretionary and real estate faring the worst. From a size perspective, larger stocks often considered more stable fared better than smaller vulnerable stocks for the month. From style perspective, value stocks that benefit from rising rates outperformed growth stocks, which struggle in rising interest rate environments.
The fixed income markets did not fare much better than equities in January. US bonds were down 2.2% for the month. All major sectors were negative, led by long treasuries (-4.1%). Record inflation sent longer term interest rates higher hurting bonds³. High yield bonds were surprisingly flat for the month despite equity market volatility. International (-2.0%) and emerging markets (-2.6%) bonds followed suit and were also hurt by a stronger dollar.
The broad commodity index was a bright spot for the month, returning 8.8%. Energy was the top performer in the index and was up 22.0%. Oil prices reached highs it had not seen since October of 2014⁴. Gold (-1.9%) and silver (-4.1%) were both down for the month. REITs, a top performer in 2021, was down for -7.9% in January, and was the worst performing among all major asset class. The US dollar had a bullish start to 2022 and was up 0.9% in January.
Relative to a globally balanced (60/40) equity/bond index, allocations to commodities and global bonds helped while global equities, US REITs and gold hurt for the month.
Source: Zephyr Style Advisor
[1] Reuters - Nasdaq narrowly misses worst January ever as Wall Street gains
[2] JP Morgan - Monthly Market Review
[3] The Washington Post - U.S. stocks end January on high note but still chalk up worst month since March 2020
[4] Reuters - Oil posts biggest monthly gain in a year on tight supply, political tensions
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