Equity Overview

Almost all sectors retreated in January except for financials which were essentially flat, and energy stocks which rose significantly as oil prices hit their highest levels since 2014.

Repeating the results in December, value stocks dramatically outperformed growth stocks in January.  Reflecting this trend, at mid-month 36% of NASDAQ Composite stocks were at least 50% below their 52-week highs.

Market volatility continued, as the S&P 500 moved by 1% or more on 9 of 21 trading days.  Intra-day volatility was severe, highlighted by the price action on January 24 when the S&P 500 fell 4% before recovering to post a fractional gain.

4^th quarter 2021 earnings reported in January generally exceeded expectations.  With 33% of S&P 500 companies reporting, 77% beat consensus earnings estimates and 75% beat consensus revenue estimates—in both cases, above the five-year average but below the one-year average.  However, the aggregate size of earnings beats was relatively small:  4.0% above consensus versus a one-year average of 15.7% and a five-year average of 8.6%.

Macro Overview

Economic data reported in January was mixed.  On the positive side, the Commerce Department reported that GDP rose 5.7% in 2021, the fastest pace since 1984, completely reversing the contraction of 3.4% in 2020.  On the other hand, the Bureau of Labor Statistics reported that the Consumer Price Index rose 7% in 2021, the fastest pace since 1982.  Employment numbers were also divergent:  unemployment fell to 3.9% but new jobs rose by only 199,000, well below expectations of 440,000.

Responding to the stubbornly high inflation statistics, the Fed telegraphed a likely interest rate hike in March, as well as a simultaneous end to its bond purchases.  It also suggested that it is preparing for significant asset reductions from its record $9-trillion balance sheet.