Monthly Market Update | January 2022

Our team of experts share their Monthly Market Update for January 2022.

Feb 15, 2022|Market Insights- 11 min


1. The Federal Reserve (the “Fed”) signals rate hikes to begin in March
2. Geopolitical tensions are heightening between Russia and the West over Ukraine
3. The European Central Bank (ECB) hints at rate hikes in Q4 2022
4. Oil rallies amid bad weather and tensions growing regarding Ukraine
5. Equities decline following a surge in inflation
6. Sentiment declines amid inflation and supply chain concerns

Policy & Geopolitics

The Fed signals March rate hike

The Fed signaled it would begin raising interest rates steadily in mid-March, its latest step toward removing stimulus to reduce inflation. Fed Chairman Jerome Powell announced possible rate hikes at consecutive policy meetings, for the first time since 2006. The interest-rate futures markets anticipate a rate increase of at least 0.25% in March and a nearly 70% chance of a second rate increase by the May Fed meeting. Mr. Powell suggested that additional forward guidance is unlikely, which has been a central feature of Fed policy.

With inflation reaching a 40-year record of 7% in January, and store shutdowns across the U.S. due to the Omicron variant aggravating price increases further, the Fed may increase the pace of rate increases.

The Fed approved a final round of asset purchases before ending the stimulus program by March. Deliberations continued at the two-day meeting over how and when to shrink the $9 trillion securities portfolio of the Fed, which has more than doubled since March 2020. Goldman forecast that process will begin in July in $100 billion monthly increments, to shrink the balance sheet to a still-elevated $6.1 trillion to $6.6 trillion over two or 2½ years.

ECB President Christine Lagarde announced a possible interest rate hike in 2022, marking a remarkable policy turnaround for one of the world’s most dovish central banks, after inflation reached new records for a third month to 5.1% in January. Klaas Knot, the Dutch Central Bank President and member of the ECB governing council, said he supported winding down the asset purchasing program as quickly as possible, with possible rate hikes in Q4 2022 and Q1 2023

Geopolitical tensions between Russia and the West over Ukraine

The recent buildup of 100,000 Russian troops along the Ukraine border has heightened concerns over a possible invasion in early 2022. Although unlikely, a Russian invasion of Ukraine would cause a drop in stock prices and a surge in commodity prices. Oil prices have already built in some premium, having reached seven-year highs in late January.

Moscow denies plans to invade but has repeatedly opposed any expansion of the U.S.-led North Atlantic Treaty Organization. But U.S. officials insist that such a move is possible with more Russian military equipment being moved westward toward Ukraine.

Some analysts believe that Russia may not invade but will  cause other problems for Ukraine, like cyber warfare and economic disruptions. The U.S. and the U.K. have promised swift retaliation to a Russian invasion in the form of economic sanctions on President Vladimir Putin, Russian oligarchs and others, its financial system and industries. 

Macro Indicators

Robust job gains despite Omicron spread

U.S. unemployment rose slightly to 4% in January from 3.9% in December as more people join the workforce. U.S. employers hired at a rapid pace late last year and in January, bolstering the economy in the face of the Omicron wave and staffing shortages. The U.S. economy added 467,000 jobs in January, with job growth in November and December combined being approximately 700,000 higher than previously reported. The robust job gains this winter show resilient hiring demand as Delta and Omicron cases surged. January payrolls would have been stronger were it not for the surge in Omicron cases. The Labor Department said that nearly two million workers were prevented from seeking jobs last month due to the pandemic. And the number of Americans who said they were unable to work because their employer closed or lost business due to the pandemic nearly doubled from December to January. Historically low unemployment is helping wage growth. Wages climbed 5.7% year on year (YoY) in January, nearly double the average of about 3% before the pandemic. Unemployment in the Euro area dropped to 7% in December from 7.1% in November and 8.2% in the same month last year.

Inflation reaches 40-year record

Real GDP growth increased 6.9% in Q4 after increasing 2.3% in Q3. The acceleration in real GDP in Q4 were due mainly to the growth in exports, investment in private inventory and personal consumption expenditures, and smaller decreases in residential fixed investment and federal government spending, offset partly by lower state and local government spending. Consumer spending, which comprises ~70% of the US economy, increased 3.3% in Q4 from 2.0% in Q3 as disposable personal income increased 0.3%. The record growth in the first half of 2021 was helped by government stimulus, business re-openings, and rising vaccination rates which eased in Q4.

US retail sales fell 1.9% in December, the biggest drop in 10 months, possibly due to early holiday shopping to avoid empty shelves at stores.

U.S. seasonally adjusted annual home sales fell 4.6%  in December to 6.18 million, the lowest in four months and below market forecasts of 6.44 million, mostly due to low inventory.

Eurozone GDP growth slowed sharply to 0.3% in Q4, from 2.3% growth in Q3. The Omicron wave slowed the eurozone economic growth in Q4 2021 with restrictions reimposed in many European countries. But YoY growth was still at a respectable 4.6%.

The US Consumer Price Index (CPI) increased 7.0% YoY in December, marking its fastest 12-month pace in nearly 40 years. Core CPI, which excludes food and energy, climbed 5.4% YoY in September, marking its largest annual growth in 20 years. CPI in the euro area increased 5.0% YoY in December (from 4.9% in November), with energy prices as the largest contributor.

The IHS Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 55.5 in January from 57.7 in December in the US and increased to 58.7 from 58.0 in the Euro area. Production in the US slowed this month, due mainly to the Omicron variant and shortages in raw materials and labor.

Sovereign bond yields rise amid investor concerns

10-year US Treasury yields rose to 1.9% on January 21, the highest since December 2019, amid growing anticipation that the Fed would start hiking interest rates. Yields closed January at 1.78%. Germany’s 10-year bund yields were positive for the first time in nearly three years, closing January at 0.01%, due to surging inflation and wider moves in the global bond market.

Financial Markets

Equity markets decline amid hawkish policy shift

The S&P 500, Dow Jones and Nasdaq fell 5.2%, 3.2% and 9.0% in January, respectively, driven by inflation reaching a 40-year high of 7%, and hawkish policy shift of the Fed, with an expected rate hike in March.

The STOXX Europe 600 fell 4.3% in January, while the UK FTSE100 fell 0.5% amid the Omicron wave and expected interest hikes. Asian equities were mixed, with the Chinese SSE Composite Index and the Japanese Nikkei 225 Index falling 7% and 8%, respectively, while the Hong Kong Hang Seng index rising 2%.

Credit spreads widening

Investment grade spreads widened to 1.10% at the end of January from 0.98% in December amid worries about interest rate hikes and weaker equity markets, while high-yield spreads rose to 3.63% in January from 3.10% in December.

Oil prices reach new highs amid geopolitical tensions

Spot WTI and Brent crude oil prices rose from $75.33 and $77.24 per barrel, respectively, in December to $89.16 and $92.35 at the end of January. The benchmarks rose approximately 35% since the start of December, reversing a steep plunge that began in late October, amid rising geopolitical tensions between Russia and Ukraine, that could affect already tight supplies. Also, the winter storm in Texas fueled concerns about production outages in the Permian Basin, the largest US shale play.

OPEC+ stuck to a previously announced schedule and increased March production by 400,000 barrels per day amid pressure to boost output and alleviate the rapid appreciation in oil prices.

US dollar rises, gold falls, and Bitcoin plummets

The US dollar breached 97 for the first time since July 2020, reaching 97.23 on January 28, amid the upcoming rate hikes. The dollar dropped to 96.5 in January due to weak private jobs data, but was above the 96 in December. Meanwhile, gold prices fell nearly 2% in January to $1,797, following a stronger dollar and rising US bond yields. Bitcoin fell 20% in January to $38,492.9, 40% below its all-time high of $68,789.6 on November 10.


Positive Tech earnings overall despite lingering supply challenges

Apple Q4 revenues and earnings per share (EPS) were above estimates, rising 11% to a record $123.9 billion, and 25% to $2.10 YoY, respectively, despite supply challenges and the lingering effects of the pandemic. Apple beat sales estimates in every product category except iPads, with iPhone and Mac sales rising 9% and 25% YoY, respectively, while iPad sales fell 14% YoY.

Amazon Q4 revenues grew 9.4% YoY to $137.4 billion, their first single-digit growth since 2017, with EPS of $5.80. Despite weaker-than-expected sales and disappointing guidance, Amazon gave investors enough confidence that growth will recover. Advertising services grew 32% YoY to $9.7 billion in Q4.

Meta shares tumbled after disappointing earnings. While the revenue of $33.67 billion was above the expected $33.4 billion, EPS of $3.67 were below expectations of $3.84. Daily Active Users (DAUs) dropped slightly in Q4 for the first time, due mainly to IOS privacy changes and macroeconomic challenges.

Alphabet Q4 revenues of $75.33 billion were 4% above consensus estimates, while EPS of $30.69 were 12% above estimates. Advertising revenue rose 33% YoY, driven by Retail and while Media and Finance.

Microsoft Q4 revenues of $51.73 billion were 2% above estimates and EPS of $2.48 were 7% above estimates. Azure cloud revenues grew 46% YoY. Productivity and Business Processes, which includes Office products and LinkedIn revenues grew 19% YoY. The gaming business is in the spotlight following the announcement to acquire Activision Blizzard for $68.7 billion.

Tesla revenues and EPS of $17.72 billion and $2.52 were 7% above consensus, with revenue growing 65% YoY. Net income grew 760% to $2.32 billion, with a gross profit margin of 27.4%, compared to 26.6% in Q3. CEO Elon Musk expects Tesla to remain “chip-limited” in 2022, with no new vehicle models introduced this year.

Financials deliver strong earnings despite rising expenses

JP Morgan and Citi EPS beat consensus estimates by 11% and 6%, respectively. JP Morgan revenues of $30.35 billion exceeded the $29.9 billion forecast, while Citi revenues of $17.00 billion exceeded the $16.75 billion forecast. Q4 profits of JP Morgan and Citi dropped 14% and 26%, respectively, due to rising operating expenses.
Q4 EPS was 5% above estimates for Morgan Stanley and 8% below estimates for Goldman Sachs. Goldman revenues of $12.64 billion exceeded the expected $12.08 billion, driven by gains in investment banking and wealth management. Morgan Stanley revenues of $14.52 billion was below estimates of $14.6 billion.
The performance of Visa, Mastercard and American Express was stronger than expected, confirming the economic recovery. Visa revenues of $6.6 billion were above the expected $6.5 billion while the EPS of $1.65 exceeded the expected $1.56. Mastercard revenues of $2.3 billion rose 27% YoY, while the EPS of $2.35 exceeded the expected $2.19. American Express revenues of $12.2 billion rose 30% YoY, while the EPS of $2.18 was well above the expected $1.78.

Mixed earnings for Energy while Industrials thrive

Exxon Mobil Q4 revenues jumped 80% YoY to $84.97 billion, which was below the expected $91.85 billion, while EPS of $2.05 beat the expected $1.93. Chevron Q4 revenues of $48.13 billion exceeded estimates of $45.69, while EPS of $2.56 were below the estimated $3.12.
The revenues of Caterpillar, often considered a barometer for the economic cycle, of $13.8 billion were above the estimated $13.1 billion with the EPS of $2.69 exceeding consensus estimates of $2.26.


Consumer sentiment falls amid inflation fears

The Consumer Sentiment Index of the University of Michigan fell to 67.2 in January from 70.6 in December, its lowest level since November 2011. Inflation remains the main concern, followed by a weakened economy in 2022.

The VIX index rose to 24,83 in January, from 17,22 in December, largely due to the expected rate hikes.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) showed “Fear” at 34 as investors flee risky stocks for the safety of bonds.


The number of COVID-19 cases and deaths worldwide surged through January due to the Omicron variant.

US COVID-19 cases peaked to 800,000 daily average cases in mid-January due to Omicron, then nearly halved towards month end, to approximately 450,000. Although hospitalizations declined significantly, they remain among the highest levels of the pandemic. 64.2% of Americans are fully vaccinated, and 27% had booster shots.

The Omicron wave created chaos amongst all European countries, with a record 7 million cases in the first week of January. Restrictions were re-imposed in most countries as the Institute for Health Metrics and Evaluation forecast that more than half the population would be infected through January and February.

Cases surged in Southeast Asia and most countries imposed stricter border restrictions; The Philippines barred nationals from countries with Omicron cases and Thailand ended programs allowing tourists to enter without quarantine. Meanwhile, Australia reopened its borders for the first time in nearly two years. Deaths remain low in the region relative to Europe and the US.

The Month Ahead

1. Fed interest rate hikes

2. Ongoing talks on de-escalating the Ukraine crisis

3. Omicron COVID-19 variant




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