The March
Towards March

Weekly Market Update | January 31, 2022

Highlights

U.S. stocks outperformed international stocks last week – ending a three-week slump with the S&P 500 rising by 0.8% – as the economy grew faster-than-expected and a major tech company reported less supply chain issues. The Dow Jones rallied 1.3% while the NASDAQ finished the week flat. Shares overseas struggled with European stocks dropping 3.3% and Japanese stocks falling 4.0%. The 10-year U.S. Treasury yield was little changed – closing the week at 1.77%.

Fed Chair Powell did not pivot from his hawkish tone at the Fed’s January Federal Open Market Committee meeting. Instead, he did not push back against the notion of monthly rate hikes and stated that there’s a substantial amount of shrinkage in the balance sheet that must be done. These types of vague statements can lead to increased monetary policy uncertainty and volatile markets.

The market is now pricing in five rate hikes in 2022 with the first rate hike likely occurring in March. Balance sheet reduction could begin shortly thereafter…perhaps in July. That is a noticeable difference from the path the Fed took following the Global Financial Crisis when it waited until two years after the first rate hike to reduce the balance sheet…this time around it could occur just two meetings later.

Citi’s Global Investment Committee recommends upgrading portfolios by adding further to high quality income-producing risk assets like global dividend growers. Though history suggests that negative returns in January do not necessarily imply negative returns for the year, now appears to be a good time to strengthen portfolio diversification.