Market volatility over the second half of January continued to make news headlines. One example: on January 24th the returns of the Dow Jones Industrial Average (Dow) swayed by 1,200 points on that single day – at one point the Dow was down over 1,100 points before posting a gain of 100 at the closing bell.
Despite some significant growth at the end of the month, overall January returns showed losses across all the major markets. On January 19th the NASDAQ Composite Index (NASDAQ) hit correction territory for the first time since November of 2019. (A correction is defined as a 10% drop in value.)
This volatility is not unexpected, however, particularly after a stellar 2021. Driving forces include concerns over inflation, supply chain issues, the expectation that the Federal Reserve (the Fed) will raise interest rates more aggressively this year and COVID. [Tensions in Ukraine between NATO and Russia will continue to be the wild card until the situation is resolved – hopefully through diplomatic means.]
Supply chain issues are resolving, which should help relieve inflationary pressure, but it may take several more months to return to normal. Meanwhile the labor shortage continues to impact markets, with millions of unfilled positions likely continuing to pressure wage increases.
The Fed has committed to several interest rate hikes this year, which should also help abate inflation. However, this is a double-edged sword as raising rates too quickly can impact market growth. We will continue to closely monitor the Fed’s actions. Thankfully we seem to be over the latest spike in COVID cases, although fears over the next variant remain.
Despite these headwinds, many economists expect inflation to moderate, with an uneven first half of the year followed by a strong second half and a recovery to new market highs. We expect volatility to continue, but remain optimistic over the long term.
As of January 31st, the markets all posted negative returns for the month. The Dow Jones Industrial Average (Dow) fell 780 points (2.17%), the S&P 500 dropped by 147 points (3.16%) and the NASDAQ lost 654 points (4.39%).