KEY HIGHLIGHTS
- The S&P 500® was down 5.26% in January, bringing its one-year return to 21.57%.
- The Dow Jones Industrial Average® lost 3.32% for the month and was up 17.17% for the one-year period.
- The S&P MidCap 400® decreased 7.27% for the month, bringing its one-year return to 12.62%.
- The S&P SmallCap 600® dropped 7.31% in January and had a one-year return of 9.30%.
MARKET SNAPSHOT
"So goes January, so goes the year" is true for the S&P 500 70.97% of the time (since 1926), but it has not worked for the past two years, and it has been true 50% of the time over the past 10 years. For this January, the index declined 5.26%. During the month, it reached -11.40%, surpassing the worst January in history, 2009's 9.87% decline (2009 went on to post a 23.45% gain), but it recovered over half of that level by month-end. As for volatility, the average daily high/low spread was 2.06% (Jan. 24, 2022, was 4.61%), compared with 2021's 0.97%, with 7 of the 20 days declining at least 1% and 2 up that amount.
Volatility returned with a vengeance, as the bond vigilantes failed to dominate (although they did make an appearance), and intraday swings returned (average daily was 2.06% compared with 0.78% for January 2021) to make or "broke" day traders, who were willing to pay a high premium for option strategies. Trading imbalances were plentiful (but with few non-guidance-related ones). Reallocation and shifts to value from growth, some selective profit taking (that the market didn't already adjust for), and selling overpowering buying are the market's ways of claiming that the decline is temporary (although no one dared use the word "transitory"). For the month, the S&P 500 crossed the correction point intraday, down 11.97% on Jan. 24, 2022, from the January closing high), though it never closed there, and closing prices are the index's measurement for bull and bear classification. Inflation was the main concern, as the stats (CPI, PPI, PCE, etc.) pointed to more inflation for 2022, with hope for better stats at year-end. The higher inflation fears translated to market action via stocks being more susceptible to interest rates (both higher and lower) and expected consumer pull back, which could affect the economy. Some spoke of the Fed's preference for interest rate hikes (five expected, with some speculating on a 0.50% one) without balance sheet action, as the feared issue would be an inverted yield curve, resulting in the use of the word "recession" (banned in some areas). Eventually regressions tend to return, now or later, but the concern now is whether a shaky landing (few see a soft one) is viable, but this may only be possible if consumers continue to spend and companies are able to continue to pass along costs (which could be helped by the continuance of supply issues).
