• Government-bond rates rose across maturities in major developed markets; most fixed-income asset classes suffered losses.
  • Although there have been pockets of speculative behavior in some areas of the financial world, we do not see the sort of widespread frenzy that would point to a serious equity correction in 2022.

Global equities tumbled into the New Year with the largest one-month decline since March 2020. Volatility increased slightly during the first half of January, then marched higher before jumping erratically at the end of the month amid dramatic intraday price swings.

The specter of rising rates in the face of persistently high inflation, coupled with geopolitical uncertainty driven by Russia’s military encirclement of Ukraine, were widely cited as sources of investor consternation.

Hong Kong and U.K. equities stood apart from other major markets as both registered positive performance in January. In emerging markets, huge gains in Latin America more than offset plummeting stocks in China; this resulted in a considerably smaller decline in emerging-market equities compared to the selloff in developed-market stocks. Japanese equities fell by less than the U.S., while Europe lagged both.

Value-oriented stocks fell by considerably less than their growth-oriented counterparts.

Government-bond rates rose across maturities in the U.S., U.K. and eurozone. Shorter-term rates were the largest gainers in the U.S., while intermediate-to-long-term rates increased by more than other maturities within the U.K. and eurozone.

Local-currency emerging-market debt was essentially flat in January, halting a string of recent negative performance; the rest of the fixed-income universe was negative. Investment-grade corporates had the steepest decline for the month.

Commodity prices continued a seemingly relentless climb. West-Texas Intermediate and Brent crude oil prices were up a respective 17.2% and 14.8% in January, while the Bloomberg Commodity Index advanced by 8.8%.

With a growing Russian military presence at Ukraine’s border, Nord Stream 2—Russia’s not-yet-operational (although completed) natural gas pipeline that runs along the Baltic seabed directly to Germany—became the subject of renewed Trans-Atlantic interest in late January given the leverage it would provide the Kremlin over Europe. U.S. senators introduced a bill directed at preventing the pipeline from being put into service. German Chancellor Olaf Scholz has been scheduled to visit President Joe Biden at the White House in early February.

U.S. deliveries of liquefied natural gas to Europe via cargo ships accounted for nearly half of the Continent’s record imports in January—helping to restock depleted reserves as year-ago levels nearly tripled.

The U.S. deployed 2,000 troops to Germany and Poland, mobilized 1,000 troops to Romania, and ordered additional troops to stand by for deployment at the beginning of February, after having prepared an initial 8,500 troops to deploy in January.

Shortly after January’s close, U.K. energy regulator The Office of Gas and Electricity Markets (Ofgem) announced that a cap on energy prices is set to increase by more than 50% this spring, effectively guaranteeing dramatically higher household energy bills. The U.K. Treasury reportedly intends to help counteract rising living costs via discounts on energy bills, accommodative loans to suppliers, and larger disbursements this year from a reserve established to help low-income households cover spikes in fuel costs each winter.

Read the full commentary for January's economic data and SEI's view.

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Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding SEI’s portfolios or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.

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