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Weekly Market Update for January 21, 2022

by Jim Ulland

Ouch! The NASDAQ corrected more than 10% in what felt like ten minutes. The NASDAQ is down about 12% since Christmas and concluded its worst week in the past twelve months. It is cold comfort that the NASDAQ is still up 10% during the last twelve months and that corrections are normal. The NASDAQ has corrected more than 10% sixty-six times in the last fifty years. The SP 500 has averaged a 10% correction about every eighteen months.

Although convenient to do so, we can’t blame rising interest rates for the bad week. They went down. However, the fear of higher interest rates persists and has put a cloud over the market. With inflation staying high, the fear is that the Fed will raise interest rates rapidly, starting in March. Covid, another culprit, has made it difficult for some to return to work. A shortage of workers has forced wages higher. The shortage also has exacerbated the supply chain issues. Fewer workers means less people making goods and fewer drivers getting them to market. The result is higher prices.

An end to the Omicron infections would do a lot for allowing workers to return to work, improve the supply chain, and reduce inflationary pressures. If these things happen, the Fed will not have as much urgency to raise interest rates as they have now. Former FDA Commissioner Dr. Scott Gotlieb said this morning that the peak in Omicron infections has occurred on the East and West Coasts and will do so in the next two to four weeks in the Midwest. If so, that could be just in the nick of time to save more market damage.

Economic news this week was mixed. December housing starts and building permits were better than expected while unemployment filings were worse than last week, although still at a low level. The Philadelphia manufacturing index was better than expected while the New York manufacturing index was substantially worse.

Corporate earnings too were mixed. Bank of America and Morgan Stanley had very strong earnings. But Netflix was a big disappointment. Its stock got crushed along with Peloton, which announced it was reducing production to adjust inventories. In both cases, the return to working in an office rather than from home was noted. A wider variety of earnings will be released next week. Expect the market to be skeptical. There will be margin pressures from higher wage costs. Continuing supply shortages reducing planned production will commonly be mentioned. We hope the market sees a bottom next week and begins a slow crawl back.

For the week the SP 500 was down -5.7%, the NASDAQ was at -7.6%. Monday the market was closed for MLK Day, Tuesday the SP 500 -1.84%, Wednesday -0.97%, Thursday -1.10%, and Friday -1.9%.

Hundreds of companies report Q4 earnings next week. Among the big names are Halliburton, Tesla, Intel, Boeing, and Apple. We hope they strike a positive tone.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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