Markets “In a Nutshell” for January 17, 2022
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 0.90%, the S&P 500 was down 0.30%, and the NASDAQ fell 0.30%. Foreign stocks (MSCI EAFE) were up, rising 1.30%. Bond prices were lower for the week, with the 10-year U.S. Treasury ending the week at 1.78%. (Data source: Wall Street Journal)
The Consumer Price Index (CPI) data, which is used to gauge inflation, was released last week for December. The number came in at 7% year over year which is the highest year-over-year inflation number since 1982. This is also the 8th straight month that we have seen inflation over 5%. Although these numbers are very high, the market has been able to absorb them for the moment as they have been expected. As we move further into the year, these numbers will need to start coming down for the market to continue to shrug them off. If these numbers keep coming in at these levels for 2022, expect the market to have increased volatility as inflation will surely be the focus of the market in 2022.
The Fed’s Response
One of the ways to help slow inflation is Fed policy, and many believe the Fed needs to act soon before inflation gets out of hand. Several Fed officials are calling for rates to be raised in March of this year. It was less than 1 year ago that there was a belief of no rate hikes through the year 2023. However, with inflation running hot and unemployment back to low levels, the Fed has shifted its focus to inflation instead of employment. Bond markets currently have priced in a 90% probability of four rate hikes in this year alone. Although this could cause some strain on the market, with this now being the expectations many believe the market has these rate hikes priced in. If there are more than these four rate hikes the market will have to price that in as valuations will be tightened due to higher rates.
What was the Federal Funds Rate Pre-Pandemic? (Scroll Down for Answer)
Have a Great Week!
3) 1.6%. In January 2020 this was roughly the Federal Funds Rate, with us being at near 0% we still are nowhere near pre-pandemic levels which is why a rise in the rate will not completely hurt the market instantly.