The S&P 500 just ended its worst month since March 2020 as investors fret about coming interest rate hikes and uncertainty over the situation in Ukraine.
While the index closed up more than 1.8% on Monday, it still shed more than 5% of its volume during the turbulent month, which was also the S&P 500’s worst-performing January in more than a decade.
Other indexes also fared poorly, with the tech-heavy Nasdaq tumbling more than 9% this month and the Dow Jones Industrial Average also in the red, although the Dow rose more than 400 points, or 1.17%, Monday. The Russell 2000, which gauges the performance of smaller companies and is seen as a barometer of the U.S. economy, was down more than 10% this month.
Some of the trading this month was marked by large shifts, with stocks down by wide margins before paring those losses in wild intraday swings. Investors retreating from assets such as equities amid anxiety about the Federal Reserve drove a lot of the mercurial trading.
The central bank’s Federal Open Market Committee, which sets interest rates, met earlier this month and signaled that the first upward revision to the federal funds rate in years is likely to come in March, with multiple more on the agenda for 2022.
The central bank is hiking rates in response to burgeoning inflation, which has accelerated to 7% in the year ending in December, the fastest pace since 1982, according to the Bureau of Labor Statistics. The Fed must toe the line between hiking rates enough to dampen the higher prices while trying its best to mitigate losses to the country’s economic recovery.
While it is unclear how many rate hikes will end up occurring this year, investors are guessing there will be more than the three expected after the Fed’s December meeting.
The Fed, which embarked upon an ultraloose monetary policy after the start of the pandemic, has been tapering its massive monthly asset purchasing program for weeks now. The central bank had previously been buying $120 billion of Treasury and mortgage securities each month. After that program ends, the Fed will be looking at how to shrink the balance sheet.
Adding further uncertainty to the markets is the situation in Ukraine. The United States fears that Russia, which has been amassing forces along the Ukrainian border, could try to invade the country in the coming weeks — a prospect that would undoubtedly result in sanctions and could throw the markets into even more disarray.
