January 2022 Market Commentary: Grasping Towards Transitory

Benjamin M. Lavine, CFA, CAIA, RICP
Chief Investment Officer, 3D

Data Source: Bloomberg

To read full commentary, click here

January 2022 Highlights:

  • Global stocks pulled back from their strong CY2021 finish as prospects for tighter central bank policies responding to high headline inflation metrics and geopolitical risks (Ukraine/Russia) prompted investors to take financial asset risk off the table. In January, the MSCI All-Country World Index (ACWI) dropped 4.9% as the U.S. lagged major market regions for the first time in several months.
  • Across major regions, last quarter’s laggards were this month’s leaders with MSCI Emerging Markets outperforming developed markets. MSCI Emerging Markets dropped 1.9% followed by MSCI Pacific ex Japan (-4.0%), MSCI Europe (-4.6%), MSCI Japan (-5.1%) and the S&P 500 -5.2%).
  • Within the U.S., U.S. large caps outperformed small caps but value stocks (primarily driven by energy) outperformed growth stocks, although growth stocks made a strong comeback late in the month, led by technology. U.S. small caps underperformed large caps with the S&P 600 Index returning -7.3% behind the -5.2% return of the S&P 500. S&P Pure Value outperformed Pure Growth, returning 2.0% versus -13.3%, respectively.
  • Energy stocks were the standout performer benefiting from the sharp rise in oil and natural gas prices, especially across Europe and Asia where natural gas demand spiked in response to cold wintery conditions and tightened supplies. Financials and Defensive sectors such as Consumer Staples and Utilities also outperformed while Growth Cyclicals (Technology, Consumer Discretionary) and Real Estate underperformed.
  • Among risk factors, only High Dividend and Value Factors outperformed Minimum Volatility, High Quality and Momentum although the latter two factors saw a sharp recover last several days of the month.
  • Investment grade fixed income suffered from a rise in interest rates although longer maturity rates dropped from intramonth highs as the bond market started to price in a risk of the Fed overshooting on rate hikes. The 10-Year US Treasury yield, having risen as high as 1.9% ended the month at 1.75%.
  • The Bloomberg/Barclays U.S. Aggregate Bond Index dropped 2.2% while the Global Aggregate ex US Index dropped 2.0%, as the U.S. dollar fluctuated. Investment grade credit underperformed as BBB-rated spreads widened.
  • S. high yield had held up relative to the broader fixed income market but then experienced spread widening over concerns that Fed tightening would crimp liquidity and access to low-cost financing. The Bloomberg / Barclays US High Yield Index returned -2.7%, underperforming investment grade fixed income, while Bloomberg/Barclays Emerging Market Debt Local Currency outperformed only dropping 0.3%.
  • Within equity alternatives, S&P GSCI Commodities Index returned 11.6% helped by a strong increase in energy prices and industrial metals. Real estate and precious metals were hurt by a rise in real (inflation-adjusted) interest rates. The Dow Jones REITs Index returned -8.0% and GSCI Precious Metals dropped 2.1%. The generic 3-month oil price contract rose to $85/barrel from $75/barrel at the beginning of the month.

To read full commentary, click here.