Equities continue to slide to start the year as interest rate hike expectations continue to rise. The S&P 500 was down 4.0% but fared better than the 5.6% drop in the NASDAQ.
Welcome to another edition of Trends Over Time, a quarterly chartbook from BTC Capital Management. Market and economic data are usually released in isolation. The single data point, with the occasional previous period data, are usually not enough to identify a trend or a theme.
The S&P 500 lost 4.08% this week. This loss comes as investors react to the increased likelihood of contractionary monetary policy from the Federal Reserve. The FactSet Policy Rate Tracker has the probability of a rate hike of greater than 25 basis points at over 99%.
Equities remain weak to begin the year, although they managed to bounce back to end the week green. The S&P 500 was up 0.6% with identical gains seen in the NASDAQ Composite.
U.S. equity markets have welcomed us into 2022 with major market moves. Apparently, volatility is the appropriate New Year’s gift in 2022. The S&P 500 closed the first day of the year strong, up 0.64% for that day.
Now that 2022 has arrived, there are several economic themes worth monitoring. Specifically, our team plans to watch inflation, employment and interest rates as influential economic themes in the new year.
As inflation measures climbed over 2021 to levels not seen in decades, there was a rush by some to project the heightened levels would continue into the foreseeable future. Even Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen recently stated the term “transitory” should be retired when discussing the outlook for inflation in the United States.
Employment will be a major theme influencing investment markets in 2022. Tighter job markets have the potential to influence companies’ earnings negatively. The impact could range from increased product costs associated with lack of labor supply to increased labor costs from companies paying higher wages to attract employees.