Global stocks have had a volatile start to the year, hurt by economic disruptions from Omicron, risks to company profits due to rising costs, ongoing inflation concerns, and worries about a more aggressive Federal Reserve. In the US, stocks were down sharply mid-week as investors now look forward to guidance from the first Federal Reserve meeting of 2022, which will be held Tuesday and Wednesday of next week (Jan 25-26). Fed officials have indicated that they will halt asset purchases by March 2022, which sets the stage for three or four short-term interest-rate hikes this year to help counter the threat of persistently higher inflation. Some are now predicting that the Fed may need to raise rates a full 50 basis points at their meeting in March to combat rising prices. The Fed will remain a key focus for investors in the near-term, as inflation remains top-of-mind for investors. In bonds, yields continue to move higher from the beginning of 2022. For reference, the 10-year Treasury yield began the year at a yield of 1.51%, and was trading at 1.84% mid-week after reaching a two-year high of 1.88% early in the week. Oil prices continue higher, with WTI crude up 2% to $87 a barrel on Wednesday, continuing to set multiyear highs and adding pressure to the prospect of higher inflation.
On a positive note, upbeat earnings this week from companies including Bank of America, Morgan Stanley, UnitedHealth,. and Procter & Gamble helped improve investor sentiment this week. In addition, housing starts for December 2021 rose 1.4% month-over-month to an annual pace of 1.7 million units, above forecasts of 1.65 million units. Building permits, a key indicator for future construction, jumped 9.1% to an annual rate of 1.9 million, well above expectations of 1.7 million units. Finally, on the political front, the next budget challenge comes next month, as a February 18 deadline looms for passing a budget. There were two temporary extensions late last year, and hopefully Congress will reach a longer-term budget solution and can revive stalled programs that may help provide further fiscal stimulus in 2022.
Source: GSAM, Bloomberg, JPM, AGF Investments
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