Week in Review: January 28, 2022

Markets ended a volatile week on a positive note with the S&P 500 gaining 2.4% on Friday, which was enough to produce a positive weekly gain, though one would be forgiven if they doubted that fact. Volatility dominated the week with the S&P falling by 0.8% or more at some point during each trading session. That included Monday, when the S&P fell 4%, before sharply reversing to end up 0.3%. According to Barron’s, since 1978 there have only been three days where the S&P was down by a larger percentage only to end the day higher. The reversal also prevented the S&P from suffering its first official correction since March 2020. The heightened volatility was largely attributable to ongoing concerns about Ukraine in addition to inflation and uncertainties surrounding monetary policy, both in the run up to the Federal Reserve’s meeting and even afterwards.

On Wednesday, the Fed announced that it will now end its bond tapering in early March, and all but confirmed that it will begin to raise rates the same month.  Speaking afterwards, Federal Chair Jay Powell reiterated that the Fed will be as responsive as necessary in combating inflation, utilizing both interest rate hikes as well as reductions to its balance sheet. Powell also surprised markets by not explicitly ruling out the possibility of enacting a 0.50% rate hike at some point, as opposed to the 0.25% increases the market is currently expecting.

Similar to equity markets, interest rates also experienced meaningful intra-week volatility in which the 10-Year Treasury yield ranged from 1.71% to 1.88%, before ending the week at 1.77% up just 0.01% from where it started.