January 2022 Monthly Index Returns

Welcome to February!

As inflation hit 7% year-over-year in December, yields across the Treasury curve ended the month above where they started as investors brace for the Federal Reserve to start raising rates, possibly as soon as March, as they work to stave off inflation.  The potential of rising rates negatively impacted equities and fixed income in January.

In equities:

• All equity indexes were in the red for the month with emerging markets (-1.9%) being the best performer and the R2000 Growth (-13.4%) being the worst performer.
• Large caps (-5.6%) outperformed their small cap (-9.6%) counterparts in the US, with value outperforming growth in both large and small cap during January.  In fact, over the last 1 year, small cap value (+14.8%) has significantly outperformed small cap growth (-15.0%).
• Non-US equities generally outperformed US equities for the month.
• While no one likes to see negative returns, there are a few things we should remember:
  • The last 1 year returns are still quite positive in almost every equity index with the exception of the R2000, R2000G, and MSCI EM.
  • Volatility and intra-year declines are quite normal.  In fact, since 1980 the average intra-year decline of the S&P 500 is 14.0%, though we still saw positive returns in 32 of those 42 years.  Last year (2021) was an outlier where the intra-year decline was only 5%.
  • As of last Thursday's (1/27/22) close, the S&P 500 was down 9.7% from its peak. As the attached chart from Payden & Rydel shows, there have been several worse drawdowns since 2008.

In fixed income:

• Like equities, all fixed income indexes were in the red for the month.  Most FI indexes have also been in the red for the past 1 year, with the exception of 3 Month Tbill (0.0%), 1-5 Yr TIPS (+4.1%) and High Yield (+2.1%).
• During January, 1-5 yr bonds outperformed 5-10 yr bonds, which performed stronger than 10+ year bonds.  Overall, Treasuries fell less than corporates and munis.
• Over the last 1 month, 3 months, and 1 yr periods, the Bloomberg Global Agg ex-US hedged to USD has outperformed the Bloomberg US Agg.

As always, please let us know if you have any questions by emailing support@xyinvestmentsolutions.com.

As an additional note, please keep in mind that these reflect historical performance of the current models, not necessarily how accounts were invested in the past.