Weekly Market Recap | January 2, 2022

Market in Review

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Equity Markets:
Once again, Mega-Cap and Tech stocks lagged their counterparts. The NASDAQ was essentially flat, down 0.1%; while the S&P 500 was up 0.9% to close out the final trading week of the year. T. Rowe Price Traders noted trading volume was less than half of recent weeks. It appears many investors sat out the final week of trading. The S&P’s return of just under 26.9% for 2021 is the 6th highest annual return since 1990, according to FactSet.

Fixed Income Markets:
The yield curve has flattened as short-term rates have risen on the heels of Omicron. The 10-yr Treasury finished the week at 1.51%, with the 2-yr at 0.734%, narrowing the 2s/10s spread to 0.778%. 2021 was a tough year for fixed income investors. Starting the year off in a historically low yield environment, many expected to see a large rise in yields. Rates did work their way slightly higher toward year-end, and the US Aggregate Bond Index was down ~1.7% for the year.

The economic calendar was very light to end the year with no major numbers being released. This will change as we kick off 2022 with many important economic readings.

Looking Ahead

Equity Markets:
Another year of the pandemic is behind us, and the markets will look to build on the strength of 2021. Important economic data, corporate earnings/guidance and specifics on the game plan from the Fed should be major factors influencing the markets. A similar theme should continue to be watched – the COVID variant Omicron. It appears the market has braced for the widespread, but less severe, Omicron and is thus not likely to have a major impact. However, continued downward pressure in the markets related to COVID cannot be ruled out quite yet. After months of little volatility, the end of 2021 was the opposite. There were large daily moves in both directions, and we believe volatility is likely to persist.

Fixed Income Markets:
The minutes from the Fed’s December meeting will be released this week. This will give market participants the ability to read through the fine details behind the decision to accelerate the taper on their asset purchase program. We will also see the full discussion regarding the likely rate hikes to happen in 2022. The minutes allow investors to dissect the Fed’s new stance, and assess the likelihood of their new policy going as planned. Later in the week, members of the Fed will be speaking. With monetary policy in the headlines for weeks, and to likely be a major factor in the markets going forward, hearing from the decision-makers themselves will always garner attention.

Important economic numbers will start the year off. We will have the readings on Manufacturing and Service Sectors activity. Lagging, but an important number to be announced next week, is November’s Trade Balance. What many see as the headline report to be released is December’s Non-Farm Payroll on Friday.

Important Disclosures:

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