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Market Outlook: Dramatic market movements early in the new year

The new stock market year began with falling share prices and rising government bond yields. In the United States, the broad S&P 500 equity index lost 1.9% between December 31 and January 7 while the STOXX Europe 600 closed its first trading week of 2022 down by only 0.5%. Sweden’s All-Share Index (OMXSPI) fell by 2.4%. Long-term government bond yields in both the US and Sweden soared. Ten-year US Treasury yields are currently at around 1.75%, up from 1.51% at the end of 2021.

The world

Continued COVID-19 transmission worldwide

The Omicron variant of COVID-19 continues to drive virus transmission, with new record numbers of cases in many parts of the world. More and more countries are imposing new restrictions and pandemic responses. China is sticking to its zero-tolerance strategy, including comprehensive lockdowns that may lead to increased production problems.

The United States

US Federal Reserve adopts tougher language

Last week the US Federal Reserve published the minutes of its December 14-15 policy meeting. The message was clear: Inflation worries are spreading and monetary policy normalisation is increasingly urgent. The minutes indicated that Fed policymakers not only regard ending their bond purchases and hiking the key interest rate as urgent, but believe that they should not wait as long as last time around to shrink the central bank’s balance sheet.

American CPI figure for December will be released on Wednesday, January 12

Later today, global markets will turn their attention to US inflation figures. There are many indications of a continued upturn in both total and underlying inflation. On Friday, US retail trade figures for December will also be released. Falling real incomes and increased COVID-19 transmission are still squeezing households.

The Nordic countries

Nordic inflation statistics

In Norway, markets were surprised on January 10 by year-on-year core inflation for December, which rose from 1.3% to 1.8%. In contrast, Danish inflation surprised on the downside. On January 14, Swedish inflation figures for December will be published. We expect a continued upward trend

Our market view

2021 – what happened?

A positive start was followed by continued recovery in the spring and summer before an initially shaky autumn turned into a rebound due to strong company reports
The year in retrospect

This is how markets performed

Looking back, 2021 was a very good year for investors. Returns in the fixed income market were modest, but stock markets provided very solid overall returns, driven by corporate earnings that climbed by around 50% globally – more than for decades.
Very strong returns on Swedish and American stocks