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Monthly Market Snapshot: January 31, 2022
Highlights
Global equity markets are off to a rough start in 2022 with the MSCI AC World Index tumbling 5.0% in January as investors considered global central bank tightening. In the United States, the tech-heavy NASDAQ fell into correction territory, but finished the month down 9.0%. The S&P 500 held up better, but still declined by 5.3%. Returns overseas were also negative with European and Japanese stocks dropping 4.3% and 5.1%, respectively. Emerging market equities closed the month 1.9% lower. The 10-year U.S. Treasury yield surged 27 basis points to close the month at 1.78%.
At the start of January, investors were pricing in three Fed rate hikes in 2022. Now, investors are pricing in five rate hikes from the Fed in 2022 with some on the Street suggesting that seven may be possible. This rapid change in monetary policy expectations forced investors to de-risk in some of the frothier areas of financial markets, particularly in the technology sector.
Citi’s Global Investment Committee (GIC) maintains a +6.0% overweight on Global Equities and a -6.0% underweight on its Fixed Income and Cash allocation. The Committee recommends upgrading portfolio quality by seeking investments in firms with sufficient profitability to raise payouts.

Citi Personal Wealth Management
Regional Outlook
United States

Economy (Expanding)
The U.S. economy grew by an annualized rate of 6.9% in the fourth quarter of 2021 on the back of a restocking of inventories. However, growth may weaken in the first quarter of 2022 as the spread of Omicron weighs on economic activity. While growth could slow to 2.0% or so in the first quarter, we expect to see a rebound in activity as the Omicron surge fades. For the full year, Citi Global Wealth Investments expects growth to remain above-trend at 3.5% and for inflation to moderate to below 3.0%. We expect the Fed to hike interest rates four-to-five times in 2022.
Stocks (Overweight Large-Cap; Underweight SMID)
Citi’s Global Investment Committee (GIC) remains overweight U.S. large-cap stocks but has reduced its overweight slightly to fund more exposure in international equities. The Committee also deepened its underweight in small- and middle-cap (SMID) stocks as the space often includes companies with weaker near-term earnings potential. We continue to prefer higher quality stocks like dividend growers, healthcare, and consumer staples. Rising monetary policy uncertainty may cause continued market volatility, but we expect solid corporate earnings momentum to be supportive.
Bonds (Overweight)
The GIC is underweight short-term U.S. Treasuries, overweight intermediate-duration U.S. Treasuries, and neutral on long-dated Treasuries. We also remain overweight U.S. Treasury-Inflation-Protected Securities (TIPS). However, we did reduce our overweight to TIPS slightly on the back of solid gains and added to our overweight in intermediate-duration Treasuries and Investment Grade Corporate debt.
Europe and Japan

Economy (Europe: Expanding / Japan: Expanding)
Business confidence is softening gradually across Europe as the pace of economic activity moderates following an exceptionally strong 2021. However, demand forecasts remain strong, and growth should remain above-trend in 2022. Citi Global Wealth Investments is forecasting growth in the European Union to fall from about 4.8% in 2021 to 3.9% in 2022. Unlike most developed economies, Japan’s economy is expected to grow faster in 2022 (3.1%) than in 2021 (1.6%).
Stocks (Overweight UK; Overweight Europe ex UK; Neutral SMID / Overweight Japan)
The GIC decided to move to a slight overweight on Europe ex UK and Switzerland large-cap equities. The Committee also maintains an overweight on UK equities. Our position on non-U.S. small- and mid-cap stocks (SMID) is neutral. European companies are seeing an easing of COVID restrictions, benefiting from strong corporate earnings, and offer attractive dividend yields. We also see Japanese stocks as potentially benefiting from upward revisions to earnings-per-share (EPS) estimates in the year ahead.
Bonds (Underweight)
The GIC maintains a deep underweight on both European and Japanese sovereign bonds.
Emerging Markets

Economy (Expanding)
Citi Research’s economists expect emerging market economies to slow from 6.7% year-on-year in 2021 to 4.4% year-on-year in 2022. China’s economy is expected to slow from 8.1% in 2021 to 4.7% in 2022.
Stocks (Overweight Asia ex-China and China; Neutral Latin America; Underweight EMEA)
The GIC is overweight Emerging Market Asia ex China and recently added more to China. While growth in China is expected to slow, macroeconomic policies are expected to ease. This could serve as a tailwind for the region’s equity markets. We are neutral on Latin America and underweight Emerging Europe, Middle East, and Africa (EMEA).
Bonds (Overweight Asia; Neutral EMEA and Latin America)
The GIC maintains an overweight on emerging market fixed income, specifically Asia. In local bonds, future returns may be driven by foreign exchange movements.
U.S. Stock Market and Economic Forecasts
Indicator | 2020A | 2021F | 2022F |
---|---|---|---|
S&P 500 Estimate | 3,756 | 4,766A | 5,100 |
S&P 500 P/E Ratio | 27.43x | 20.96x | 19.62x |
S&P 500 EPS Growth | -13.5% | 43.1% | 8.3% |
GDP (YoY) | -3.4% | 5.7%A | 4.0% |
Inflation (YoY) | 1.2% | 3.9%A | 2.7% |
Unemployment Rate | 8.1% | 5.4%A | 3.9% |
Global Economic Forecasts
Region | GDP Growth | CPI Inflation | 10-Year Yields | Exchange Rate vs. USD | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2021F | 2022F | 2023F | 2021F | 2022F | 2023F | 2021F | 2022F | 2023F | 2021F | 2022F | 2023F | |
Global | 5.7 | 4.1 | 3.1 | 3.3 | 3.9 | 2.7 | N/A | N/A | N/A | N/A | N/A | N/A |
Based on PPP Weights | 6.1 | 4.3 | 3.5 | 4.3 | 4.9 | 3.7 | N/A | N/A | N/A | N/A | N/A | N/A |
Industrial Countries | 5.0 | 3.8 | 2.2 | 2.8 | 3.0 | 1.7 | N/A | N/A | N/A | N/A | N/A | N/A |
United States | 5.6 | 4.0 | 1.8 | 3.6 | 2.7 | 2.0 | 1.51 | 2.00 | 2.00 | N/A | N/A | N/A |
Japan | 1.6 | 3.1 | 1.6 | -0.2 | 1.0 | 0.8 | 0.08 | 0.15 | 0.19 | 110 | 116 | 113 |
Euro Area | 5.1 | 3.5 | 3.0 | 2.6 | 3.8 | 1.6 | -0.30 | -0.06 | 0.30 | 1.18 | 1.13 | 1.12 |
Emerging Markets | 6.7 | 4.4 | 4.2 | 4.0 | 4.9 | 4.0 | N/A | N/A | N/A | N/A | N/A | N/A |
China | 8.1 | 4.7 | 4.8 | 0.9 | 2.0 | 2.4 | 2.99 | 2.88 | 3.00 | 6.45 | 6.43 | 5.89 |
Market Indicators
Equity Returns (%) | Valuations | Div. Yld. (%) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Equities | Level | 2017 | 2018 | 2019 | 2020 | 2021 | MTD | QTD | YTD | P/E | 12-Month Forward P/E |
Current |
Global | 717 | 21.6 | -11.2 | 24.0 | 14.3 | 16.8 | -5.0 | -5.0 | -5.0 | 20.3 | 17.5 | 1.8 |
S&P 500 | 4516 | 19.4 | -6.2 | 28.9 | 16.3 | 26.9 | -5.3 | -5.3 | -5.3 | 24.3 | 20.6 | 1.3 |
DJIA | 35132 | 25.1 | -5.6 | 22.3 | 7.2 | 18.7 | -3.3 | -3.3 | -3.3 | 19.0 | 18.7 | 1.8 |
NASDAQ | 14240 | 28.2 | -3.9 | 35.2 | 43.6 | 21.4 | -9.0 | -9.0 | -9.0 | 111.5 | 29.1 | 0.7 |
Europe | 3495 | 21.2 | -18.5 | 22.5 | 3.4 | 12.5 | -4.3 | -4.3 | -4.3 | 18.6 | 14.8 | 2.3 |
Japan | 3656 | 21.8 | -14.5 | 17.1 | 12.2 | -0.1 | -5.1 | -5.1 | -5.1 | 13.9 | 13.6 | 2.3 |
Emerging Markets | 1208 | 34.3 | -16.6 | 15.4 | 15.8 | -4.6 | -1.9 | -1.9 | -1.9 | 13.7 | 12.3 | 2.5 |
Fixed Income Returns (%) | Other Key Rates | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Fixed Income | YTM | 2017 | 2018 | 2019 | 2020 | 2021 | MTD | QTD | YTD | Instrument | Current (%) |
Global | 1.40 | 2.1 | 0.5 | 7.1 | 5.7 | -2.1 | -1.7 | -1.7 | -1.7 | 10-Yr. U.S. Treasury | 1.78 |
U.S. | 2.14 | 3.6 | 0.0 | 8.9 | 7.7 | -1.6 | -2.1 | -2.1 | -2.1 | 30-Yr. U.S. Treasury | 2.11 |
Europe | 0.33 | 0.5 | 0.5 | 6.0 | 4.1 | -2.9 | -1.1 | -1.1 | -1.1 | 1-Yr. CD Rate | 0.30 |
EM Sovereign | 5.56 | 9.8 | -4.1 | 14.8 | 5.4 | -2.8 | -3.0 | -3.0 | -3.0 | 30-Yr. Fixed Mortgage | 3.78 |
U.S. High Yield | 5.62 | 7.0 | -2.1 | 14.1 | 6.3 | 5.4 | -2.7 | -2.7 | -2.7 | Prime Rate | 3.25 |
Asset Class Returns (Sorted by Performance)

Note 1: Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.

Note 1: Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.