General | February 3, 2022
The new year started in a tumultuous way. Volatility gripped the market and financial markets were skewed as investors considered the fallout of an increasingly belligerent Federal Reserve on the broader economic recovery and corporate earnings. Sentiment also remained fragile amid ongoing geopolitical tensions emanating from Russia and Ukraine, which added to investor unease at the start of the year. Global stock and bond markets suffered losses in January, bolstering the case for private alternatives in a well-balanced portfolio.
Global stock markets fell overall, with the MSCI All Country World Index capping its worst monthly decline since March 2020. Developed markets underperformed their emerging market counterparts as the more expensive corners of the market took the brunt of the downturn. massive sale. Notably, the tech-heavy Nasdaq entered official corrective ground, while the S&P 500 led the monthly decline. Still, the tumult in equities was widespread and all major benchmarks ended the month down. Less exposed to the hottest sectors of the market, the S&P/TSX fell more modestly than its global counterparts, given the strong outperformance of heavyweights energy and financials.
Fixed income markets also generated negative results in January. Short-term bond yields rose sharply after Federal Reserve officials laid the groundwork for the March liftoff and President Powell’s hawkish rhetoric saw investors up their bets for rate hikes, the market now setting nearly five hikes in 2022 The yield on two-year Treasury bills rose 45 basis points to 1.18%, while the yield on ten-year Treasury bills rose 27 basis points to 1.18%. .78%. Similar moves were seen in Canada after the central bank pointed out that the economic slowdown had been unwound, virtually prompting a rate hike in March. The two-year government bond yield rose 32 basis points to 1.28%, while the ten-year yield rose 35 basis points to 1.77%. As a result, the Canadian (-3.4%) and US (-2.2%) bond markets retreated in January.
The U.S. dollar strengthened after Federal Reserve Chairman Powell adopted a hawkish tone at January’s monetary policy meeting, with bets for a more aggressive path to policy normalization boosting bond yields Treasury and strengthening the greenback. The Canadian dollar fell even in the wake of the relentless rise in crude prices, as the overall strength of the US dollar ultimately limited any significant rise in the loonie.
Finally, the powerful rally in crude oil extended for six straight weeks and prices hit a 7-year high as robust demand tightened global markets, while geopolitical risks heightened amid fears that Russia could invade Ukraine also contributed to the rise of oil. On the other hand, gold fell on the strength of the US dollar, while the strong rally in Treasury yields also weighed on non-interest bearing bullion last month.