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US Markets

January 2022 Review and Outlook

Markets were roiled in January. Inflation, monetary policy shift, Omicron, geopolitical tension, lack of fiscal policy support and supply chain issues are just a few of the more prevalent headlines that drove the risk-off sentiment.

Executive summary:

  • CPI at 7%, highest since 1982
  • FOMC liftoff expected at March meeting
  • Equity markets decline, hit correction territory
  • CBOE Volatility Index (VIX) hits 52-week high
  • Oil trades at multiyear high
  • The U.S. economy grew 6.9% in the fourth quarter 

Index performance for January:

U.S. Indices Performance

Markets were roiled in January. Inflation, monetary policy shift, Omicron, geopolitical tension, lack of fiscal policy support and supply chain issues are just a few of the more prevalent headlines that drove the risk-off sentiment. 

The Fed’s hawkish policy shift was the most notable. The major equity indices fell following the release of December’s FOMC minutes release on Jan. 5. The hawkish tone was attributed to the strengthening economy, tighter labor market and persistently higher inflation. Indications were the FOMC may raise the federal funds rate sooner (or at a faster pace) than had been expected. The Russell 2000 and Nasdaq Composite Indexes declined by over 3% each that day. 

This set the tone for the January FOMC meeting on Jan. 26 and Fed Chair Powell’s ensuing press conference. His comments were widely perceived as hawkish setting, the expectation for a March liftoff at (the next FOMC meeting). Fed fund futures now are pricing in a 100% chance of a March rate hike (88.6% chance for 25-50 basis points and 11.4% for 50-75 basis points). Economists are now pricing in five rate hikes in 2022 (with some forecasting seven). Yet a lot is still undecided in the weeks before the next FOMC meeting in March. Atlanta Fed President Bostic (non-voter) said a 50 basis-point rate-hike in March is a possibility but not his preference. His preference is for only three quarter-point hikes in 2022. Kansas City Fed President George (FOMC voter) prefers gradual rate hikes and an aggressive balance sheet roll-off, while Richmond Fed President Barkin (non-voter) said that the speed at which the Fed hikes rates depends on the economy.

Implied Overnight Rate & Number of Hikes/Cuts


All the major indexes declined in January, with most entering correction territory (a decline of 10% from recent highs). The S&P 500 suffered its largest monthly pullback since the beginning of the pandemic in March 2020. Value outperformed growth, though both indexes closed lower in the month. The energy sector was the only outperformer in January.

Small-cap stocks and big-name tech were some of the worst performers. The Russell 2000, the Nasdaq Composite and the Nasdaq 100 indexes broke long-term support at their respective 200-day simple moving averages (SMA). The S&P 500 and Down Jones Industrial indexes also broke support at their 200-day SMAs but regained those levels of support on the last day of trading in January.

Sector performance total return for January:

GICS Sectors Performance

Russell 2000 - one year:

Russell 2000 | One-year Performance

Nasdaq-100 - one year:

Nasdaq-100 } One-yer performance


The yield on the benchmark U.S.10-year Treasury saw a significant increase in January from a low of 1.51% to a high of 1.87% to close at 1.78% at month-end. The yield on the 2-year also saw a significant spike in January, moving from a low 0.75% to a high of 1.22%. The 10’s/2’s yield spread has flattened further following the FOMC statement last week to new 52-week lows.

10-year Treasury yield - one year: 

10-year Treasury yield | one-year performance

2-year Treasury yield - one year: 

2-year Treasury yield | One-year performance

10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity:

10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity

Earnings commentary: 

Corporate profits, so far, have been good for Q4’21, but the post-pandemic momentum that helped drive profits for most of 2021 is starting to fade. According to FactSet data, 33% of S&P 500 companies have reported Q4’21 earnings. Of those, 77% have beaten consensus EPS expectations, which is below the one-year average (83%) but slightly above the five-year average (76%). Companies are beating consensus EPS estimates by 4.0%, below the five-year average of 8.6%. The blended earnings growth rate stands at 24.3%, while the blended revenue growth rate is 13.9%.


Market volatility amplified in January as hawkish Fed commentary around inflation and monetary policy sent markets into a tailspin. The CBOE Volatility Index or VIX made a new 52-week intraday high on Jan. 24 at 38.94 and a new 52-week closing high of 31.96 on Jan. 26 following Jerome Powell’s press conference. The VIX has fallen 22% to 25 since that day but still is up 45% in January and up 66% since the mid-October 52-week lows of 15.

VIX - January:

VIX - January

VIX - two year:

VIX - 2 year

Economic commentary:

The U.S. Department of Labor’s Jan. 7 for Employment Situation Report for December posted worse than expected numbers on job creation (+199,000 new vs. +450,000 consensus); however, the unemployment rate was better than expected (+3.9% vs. 4.1%). Hourly wages increased above expectations (+4.7% vs +4.2% Y/Y and +0.6% vs 0.4% M/M) while the labor force participation rate was 61.9%. 

December saw another hot CPI number, coming in +0.5% M/M (vs. consensus +0.4%) and up 7% Y/Y. That’s the largest 12-month increase since June 1982. PPI for December was a bit softer (+0.2% vs. +0.4%) due to a temporary decline in energy prices. On a Y/Y comparison, the index for final demand increased 9.7% (below November’s revised 9.8%). This was the largest calendar-year advance since 2010, when the data was first calculated. The index for final demand, less food and energy, was up 6.9% (unchanged from November).

December retail sales were disappointing, declining by 1.9% M/M (vs. consensus -0.1%). Total retail sales, not adjusting for inflation, have not contracted this quickly since February. The consensus thought here is that holiday sales were pulled forward into October and November on supply chain fears. However, higher prices (see CPI above) broadly impacted consumer-spend suggesting that inflation is weighing on the consumer mindset. 

U.S. Initial Jobless Claims are still slightly elevated compared to the last two months. For the week ending Jan. 22, new claims decreased by 30,000 to 260,000 (consensus 265,000 and two-month average of 216,000), while continuing jobless claims increased slightly to 1.675 million.

The U.S. Department of Commerce’s released expanding Q4’21 GDP numbers showing annualized growth of +6.9% (consensus at +5.5%) driven by continued inventory growth. This was the fasted quarterly rise since Q3’20.

Personal income increased 0.3% in December but was below consensus (+0.5%), while personal spending decreased 0.6%, in line with consensus. 

The PCE Price Index was up 5.8% Y/Y, versus 5.7% in November, and the core PCE Price Index, which excludes food and energy, rose 4.9% vs. 4.7% M/M. On a monthly basis, the PCE deflator rose 0.4%, while core increased 0.5%.

The Conference Board’s Consumer Confidence Index dropped to 113.8 from a downwardly revised 115.2 in the previous month, indicating consumers are somewhat less upbeat about their income prospects (potentially due to inflation and /or an ending of stimulus checks).

U.S. Personal Consumption Expenditures Price Index:

U.S. Personal Consumption Expenditures Price Index



Oil prices rallied in January, trading at levels not seen since 2014. WTI’s front-month contract topped $88 a barrel (a 20% gain for the month). Some analysts are suggesting prices could top $100 a barrel in the near term. A strong dollar, geopolitical tensions (Ukraine/ Russia), high demand, inclement weather and a weak global equity market are all contributing to the black gold rally.

According to AAA data, the average cost of a gallon of regular gas in the U.S. is $3.37, up $0.08 from last month. The highest average price recorded for a gallon of regular unleaded gas in the U.S. was $4.11 in July 2008 when WTI topped $140 a barrel.

Crude Oil front-month contract for January:

Crude Oil front month contract for January

Crude Oil front-month contract for the past five years:

Crude Oil front month contract for the past five years


Gold erased mid-month gains following the FOMC policy statement on Jan. 26 and Fed Chair Powell’s ensuing hawkish commentary at his press conference. Gold lost 1.7% for the month but declined nearly 3% from its inter-month high of $1,853.87. Gold is viewed as a natural hedge against rising inflation, a weak equity market and geopolitical tensions. However, rising real rates could dampen this hedge.



Persistent levels of elevated inflation and a hawkish Federal Reserve (in a rising rate environment) helped accelerate the U.S. dollar rally. The world’s largest reserve currency reached an 18-month index high of $97.44 on 1/28 before paring gains to end the month. The U.S. Dollar Index finished up nearly 1% in January.



Bitcoin lost 17% in January and has corrected nearly 50% in the past three months from its all-time November high ($68,789.63). Interestingly, Bitcoin has seen 15 separate bear markets (a decline of 20% or more from recent highs) since its 2009 inception. The Biden administration is expected in February to release an executive order regulating Bitcoin (and other cryptos) as a matter of “national security.” 


Looking ahead:

There will be plenty of catalysts in the first week of February that will impact the markets on both the macro and micro front. More than 20% of the S&P 500 constituents will report earnings this week. We also have a heavy economic calendar ahead for manufacturing and the domestic workforce, the highlight being the January Jobs report released Friday morning (2/4). Economists are expecting the unemployment rate to hold steady at 3.9%. Continued Fed-speak will also be in focus over the month as investors look for clarifying commentary around the pace of interest rate liftoff.

The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The Market Intelligence Desk Team


Nasdaq’s Market Intelligence Desk (MID) is designed to provide critical touch-points for timely trading analysis and market information.

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