Stocks mounted a much-needed comeback Monday as investors closed out the markets’ worst month since March 2020, with the Dow staging yet another reversal to close more than 400 points higher.
Markets loathe uncertainty, and the first month of 2022 has been threat-studded and unpredictable as investors assessed what Federal Reserve had in mind for rate hikes and historically high inflation, the pandemic’s shadow over the economy, a tangle of rising geopolitical tensions and the ongoing fallout from a global supply chain in deep distress. Corporate earnings—including blowout performances from Apple and Microsoft—have thus far failed to impress. Wall Street’s fear gauge, the Cboe Volatility Index, is up 75% year-to-date.
“This is a ‘Game of Thrones’ market between the bulls and the bears, and so far, the bears are winning,” Dan Ives, managing director of equity research at Wedbush Securities, told The Post.
The Dow, which is currently down about 4% for the month, shed about 200 points at Monday’s open. The blue-chip index had notched a late session comeback Friday to cap a dizzying week that saw some intra-day swings of 1,000-points. But it reversed course, as it has done frequently in recent sessions, closed up more than 1.1%.
The S&P 500 index advanced 1.9%, reclaiming some of its January losses but still closing down nearly 5.9% in its worst monthly performance since March 2020. And the tech-heavy Nasdaq, still down 10% for January, climbed 3.4%, boosted by investors looking to buy the dip.
The biggest driver of the volatility by far, analysts say, revolves around the Fed. For years, the central bank has artificially propped up stock prices by keeping interest rates close to zero. The approach accelerated during the pandemic as an emergency bond-buying program helped fuel the market’s meteoric recovery in the second half of 2020.
Meanwhile, Americans are wrestling with the highest inflation in 40 years, which has sent prices higher on everything from groceries to gasoline to home appliances. A move to raise interest rates could ease the pain but also could limit economic activity, which often hits stocks—particularly highflying companies—hard.
Now, markets pricing in a handful of rate increases throughout the year, as the central bank moves into its most hawkish phase of monetary policy in recent memory. At the Fed’s first meeting of 2022 last week, Chair Jerome Powell did not detail how many times the Fed will raise rates but said that the central bank would have to be “nimble” and “humble” in how it responds to data that unfolds during the year, given how quickly the economy can change.
Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management Co., told The Post he thinks inflation will normalize in the next year or two. But in the meantime, the current market environment is likely to see “persistent heightened levels of volatility,” Stucky said, citing pressure from supply chain constaints, the pandemic and the forecasted rate hikes.
“These market headwinds are offsetting continued strength in corporate earnings along with a healthy U.S. consumer,” Stucky told The Post in an email.
The schism between investors who fear that the Fed’s action will slow growth, and those who believe it will help to moderate inflation and boost companies’ bottom lines in “at the heart of gyrations in the market” so far in 2022, according to Wayne Wicker, chief investment officer at MissionSquare Retirement.
To bullish investors, volatility is delivering a chance to take advantage of significant price reductions, especially in hard-hit and pricey sectors such as tech, Wicker said. But the specter of slowing growth—from omicron, Fed intervention and tougher year-over-year comparisons—is worrying many.
In this “white knuckle environment,” Ives of Wedbush Securities told The Post, investors are looking to earnings from the hundreds of companies reporting this week, including giants like Facebook, Google and Amazon, for more crumbs of good news, making this the “most important earnings season in a decade for the tech sector.”
Last week, Apple and Microsoft’s robust earnings reports were among the only bright spots for tech traders, with CEOs delivering optimistic outlooks despite supply chain disruptions, staffing shortages and other pandemic-related issues.
“Sentiment is slowly changing in the tech sector, which speaks to why strong tech earnings this week are a linchpin to stocks going higher or staying in the red during this Fed rising rate backdrop,” Ives told The Post Monday in an email.
It’s also a jam-packed week for economic data, with investors hungry for insight into how the economy is faring as omicron’s surge spurs staffing shortages and supply chain struggles continue. Reports on separations—which have been hovering near record highs for months as businesses struggle to hold onto workers—private payrolls and December jobs will offer some clarity on labor market conditions. The economy grew 5.7% in 2021, the fastest full-year clip since 1984, but labor market tightness and the pandemic’s ceaseless threats will make achieving further growth tougher in the current environment. The GDP news also helped to fuel markets’ comeback late last week, putting a rosy end on an otherwise vertigo-inducing trading period.
Oil markets have continued to buck the grim trends of 2022, bolstered by steady production and the upward pressures of tensions in the Middle East and between Russia and Ukraine. West Texas Intermediate, the U.S. oil benchmark, climbed more than 1.7% Monday to trade around $88.32 as Russia and the U.S. clashed head-to-head over the Ukriane situation during a United Nations meeting. Brent crude, the U.S. oil benchmark, fluctuated but closed up around 0.2% higher, to trade around $89.50.