January 18, 2022

Financial Markets

  • Equity prices moved higher to start the quarter with major U.S. and international indices hitting new highs boosted by strong earnings. There was a sell-off in November, particularly in growth stocks, on worries about rising inflation, higher interest rates, and the Omicron COVID variant.  Markets recovered into year-end.
  • Bond yields were up on interest rate hike expectations with the 2-year U.S. Treasury bond yield hitting a 52-week high. Yields dropped in December on Omicron worries but ended the year higher.
  • Oil prices hit a seven-year high and natural gas prices in Europe hit record highs on shortages early in the quarter but fell as COVID cases surged.
  • The U.S. dollar hit a 16-month high on expectations for rising interest rates.

Overview of the Economy

  • Third quarter gross domestic product (GDP) reports show that growth slowed globally due to energy shortages, supply chain issues, and disruptions from cases of the Delta COVID variant. Industrial production picked up again in the fourth quarter and a U.S. index of service activity rose to the highest level since 1997.
  • TheS. labor market tightened with initial jobless claims falling to the lowest level since 1969 and the number of job openings increasing to 11 million.
  • Inflation continued to rise around the world. The consumer price index (CPI) in several countries hit multi-year highs.  The CPI in the U.S. rose to 6.8%, the largest 12-month increase since 1992.

Notable Events

  • Federal Reserve (Fed) chair Powell said it was time to retire the word “transitory” when referring to inflation.
  • Japan passed a new stimulus program and China eased bank reserve requirements.