Looking Back at the Markets in January and Ahead to February 2022

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January was a terrible month. Worries about economic damage from the Omicron wave were combined with the Fed’s perceived decision to start raising interest rates based on inflation levels at a 40-year high. Stocks were knocked down around the world. Tech stocks got hit especially hard, but even fixed income was down. It really was a terrible month.

Looking Back

Case growth spike. One of the major concerns was fear that the Omicron wave would derail the economy. Slowing job growth into the end of 2021 had already hit both confidence and consumer spending. The massive spike in new cases in January seemed to suggest the damage would only get worse.

Other reasons to worry. The other big worry was that inflation was still rising and had hit the highest level recorded since 1982. The Fed, already under fire for being behind the curve, signaled strongly that it would begin tightening monetary policy to get inflation under control—starting in March. With a combination of fears about slowing growth and the promise of higher interest rates, the significant market declines made sense.

Positive trends. In good news, the end of January also saw significant changes from the negative trends that knocked the markets earlier in the month. The Omicron wave peaked in mid-month and then started to drop sharply. Case growth ended the month down 40 percent from its peak two weeks earlier.

In February, so far, case growth has dropped another 20 percent from its January peak and looks to be on a steady and steep downward trajectory. If this trend holds, we should be back to the much-lower November 2021 infection levels by the end of this month. By the end of March, case growth should be close to its lows from last year, at or below the levels seen in the last Delta wave. So, January saw both the peak in medical risks—and the start of the turnaround.

Looking Ahead

Economy picking up. There is more good news. The other major concern, that the economy was weakening, was substantially reduced by the latest jobs report in early February. This release showed substantial job gains—much larger than had been previously reported—in November and December, along with much-larger-than-expected growth in January.

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