January 2022 in Review
Daniel Zeigler, CFP, CMFC, Portfolio Manager
Hi everyone, this is Dan Zeigler, Portfolio Manager at Midland Wealth Management. Today I just wanted to provide a quick recap for the markets for the month of January.
After coming off a great year last year in the stock market, the market, unfortunately, had other plans of continuing to go higher. Likely caused by both profit-taking and the expectation the Federal Reserve could be behind the eight ball on raising rates, the S&P 500 briefly reached correction territory (down 10%) but did bounce back the last two days of the month and ended down about 5% for January. The NASDAQ, which is mainly growth companies, posted its worst January since 2008 and declined around 9% for the month.
Several factors contributed to the downside in the markets for January. Stocks are pricing in a more aggressive Federal Reserve and higher interest rates, which typically lead to lower valuations and lower stock prices, and also stock valuations have been much higher compared to their historical average.
What’s important to know is that a pullback and corrections are common and healthy for the market and every bull market has them.
In fact, stocks usually pull back 5% 3-4 times a year and actually correct 10% on average about once a year, which hasn’t happened since the beginning of the pandemic in March of 2020.
Historically, after the first Federal Reserve interest rate hike, the stock market has been up on average 7.3% within the next 12 months. So much of the volatility lately has already been pricing in the higher interest rates that are expected to come starting in March.
Overall, the economy continues to do well. GDP for the 4th quarter was up 6.9% and for the year, overall GDP growth was 5.7%, which was the fastest growth since 1984. Most economists expect more modest growth this year.
Corporate earnings grew by about 50% last year, year-over-year, and they are expected to continue growing this year by about 8%.
We will be keeping a close eye on the Federal Reserve expectations, inflation, Omicron variant, and geopolitical updates as we move along this year. If you didn’t get a chance to tune into our 2022 Outlook from last week, make sure to check out our website for the replay.