January 2022: “as goes January, so goes the year”…?

Financial markets went through a volatile start to 2022. All, or virtually all, asset classes yielded negative returns, with US (tech-) stocks delivering the biggest losses. For global stock markets, a partial recovery in the last week of January prevented even worse performances.

After a very good December 2021, January 2022 came as an unpleasant surprise to investors, especially to investors in American equities. The realisation that the US central bank, the Fed, may hike interest rates in 2022 by (much) more than anticipated earlier, sent US equities lower, the main reason being that ‘net present values’ of companies are lower when discounted at higher interest rates. This is especially true for companies with high expected profits in the future but little or no profits now, which explains why the most ‘innovative’ (but profit-less) technology companies were hit the hardest. After the first three weeks of January, the technology-heavy Nasdaq-index had lost almost 15% of its value. A partial rebound near the end of January kept losses on the MSCI North America equities-index (in euros) ‘limited’ to -3.8% for the month, but that still meant the worst start to a year since 2009. European and Asian equities fared slightly better, with monthly returns of -3.2% for the MSCI Europe equities-index and -2.6% for the MSCI Asia Pacific equities-index. Somewhat surprisingly, the worst performing equity-index of 2021, the MSCI Emerging Markets equities-index, was the ‘winner’ of January 2022, with a monthly return of just -0.1%.