This blog will serve as follow up to our previously released Q1 Investment Themes and is intended to provide an update on what we are seeing as well as our current outlook. 

Here are the top three things we are covering in this week’s blog:

  1. The market had its worst month since March of 2020 on fears of rising inflation and Fed rate hikes.
  2. January’s jobs report came in much better than analysts’ expectations, but a deeper dive into the numbers shows the growth may not be as strong as the headlines suggest.
  3. Despite estimates of quad 2 growth in Q1, the economic data continues to suggest a quad 4 slowdown is on the horizon.


After rallying into the end of 2021, the market sold off throughout the initial three weeks of January. Peak selling came the week of the first Federal Reserve meeting of 2022. With many investors fearing the first rate hike since 2018, markets tanked to lows not seen since mid-2021. The selling capitulated on January 24th when the market rallied from session lows of over -4% all the way back to positive on the day. This buying pressure helped to stabilize markets and provided a near term bottom in the major indexes. Nonetheless, the market remained highly volatile and continued to whipsaw as the Fed announced it would likely move forward with increasing rates in March. Despite a bounce out of correction territory, the S&P 500 closed January down -5.26%[1].

Hit sharply by concerns of rising rates, the tech heavy Nasdaq fell steeply into correction territory in January. However, stronger than expected earnings from Microsoft and Apple[2] created a bounce that brought the index to a close of -8.52%[3].

With an underweighting of tech, the Dow Jones showed a relative outperformance and finished the month a modest -3.32%[4].

The struggles of 2021 continued for Small Caps in the first month of 2022. With concerns of slowing growth and increased COVID shutdowns, many small cap companies fell further into the crash range. The overall index closed the month down -9.66%[5].

Driven by the volatility in US equities, the World index fell by over 5%[6].

Despite showing signs of peaking in December, Commodities exploded in January on the back of a steep rally in Oil. With the Federal reserve making it clear that inflation has escalated above initial estimates, Commodities continued to surge above multi year highs. After a strong 2021, Commodities began the year up +9.80%[7].

Gold began the month strong with investors fleeing equities to find something more stable but fell sharply after the Fed announced rate hikes[8] will likely begin in March[9].

The UST10Y was in the spotlight again as yields spiked in advance of the Fed meeting. With the spread between short- and long-term rates continuing to shrink, many market participants are fearing the effects of a flattened yield curve[10]. Since 1955, every single recession in US history has begun with an inverted yield curve[11].


After several strong months of economic growth and inflation rising, we expected to see some signs of a slowdown. While growth did begin to slow, fiscal and monetary concerns fueled a continued rise in inflationary assets.

Total claims for unemployment came down slightly to 2.07m, a drop of roughly 73,000 from the previous week[12]. This total fell further from pandemic highs while the workforce remains severely strained with continued supply chain issues.

New claims for unemployment came in at 238,000, a decrease of 23,000 over the previous week and less than a third of the previous year’s level. Continuing claims fell by 44,000 to 1.62m. Overall, the report supported the continued strength in the labor market.

However, it’s critical to note that while the number of claims have fallen significantly over the past year, many people that were initially receiving benefits hit an expiration of payments but never actually returned to the workforce. These “hidden claims” could impact the long-term impact of the strength of the labor market[13].

With commentary from the Fed suggesting that strength in the economy would lead to an acceleration in reducing monetary support, January’s jobs report was in high focus. Surprisingly, the report came out much better than expected with 467,000 jobs added, well above the estimate of 150,000.

Contrarily, the unemployment rate ticked higher to 4.00%, a slight increase over the previous month.

As a result of this unexpectedly strong report, fears of quicker than previously planned action from the Fed sent shockwaves through the market[14].

Even more encouraging, the previous five months readings were all adjusted higher to show further growth over the winter months. However, a large contributor to the positive revision of previous months data was the reduction in growth over the summer. While November and December received a boost of +709,000 jobs, June and July were revised down by 807,000. Thus, the employment totals added to the November and December readings was not actually unaccounted for growth, rather just an adjustment on when the growth occurred.

While this report was certainly encouraging, it is critical to point out that the total employment remains well below the pre-pandemic levels. Even after a strong year of growth in 2021, the total number of payrolls is nearly 3 million below February of 2020[15].

As expected, YoY GDP came in around 5.5% for the fourth quarter. While this is lower than the historic reading from Q2, YoY near 5% is a good sign for the economy. However, largely supporting this strong number is the weak data from Q4 2020. Thus, just because the GDP reading is higher than the previous year does not necessarily mean that the economy is back to pre-pandemic strength[16].

Additionally, YoY CPI showed a sizeable increase of 6.69% over the previous year. With the combination of supply chain bottlenecks and numerous direct to consumer stimulus payments, the expectation for inflation to rise throughout 2021 came as no surprise. While the jump in inflation has been kept under control for now, many are left wondering just how far it will go. With the Fed committed to taking steps to combat inflationary pressures, CPI will be on close watch in future months. Based on our third-party research, we expect inflation to peak in Q4 before stair stepping lower in 2022[17].

Pending home sales dropped again in January, falling by 6.88% on a YoY basis. This reduction comes as mortgage rates continue to shoot higher despite the ongoing economic slowdown[18]. In the first month of 2022, 30-year mortgage rates increased by over 40bps.

Another concerning data point has been the ongoing crash in consumer sentiment. After a month of turmoil in equity markets and a spike in inflationary assets, consumer sentiment fell past the March 2020 lows to the lowest level in nearly 10 years. As we discussed in previous market updates, this is worrying because of the widening disconnect between sentiment and the stocks. However, as we witnessed throughout January, this level of a disconnect can lead to a very swift and sharp correction. While this initial downtrend has begun to stabilize, we are closely watching for any subsequent drop in future weeks[19].


  1. After spiking higher throughout 2021, the market began 2022 with the worst month since the COVID crash.
  2. Concerns persist with economic data beginning to slow, inflation continuing to accelerate, and the further disconnect between stocks and consumer sentiment.
  3. While market participants have enjoyed a huge bull run over the past 1.5 years, many economic and political concerns lie in the months ahead. For this reason, we have begun shifting out Konvergent investment philosophy to an All-Weather approach that is designed to add asset classes to portfolios that can do well in this changing environment.

We hope you have enjoyed getting a deeper look into our investment research and look forward to providing this to you each quarter going forward. Thank you from the entire Konvergent Team!

[1] Slide 4: S&P 500 Drops
[2] Apple tops earnings expectations on strong iPhone sales (
[3] Slide 5: NASDAQ 100 Enters Correction
[4] Slide 6: Dow Jones Outperforms
[5] Slide 7: Small Caps Underperform
[6] Slide 8: World Stock Market Index Falls
[7] Slide 9: Commodities Spike on Inflation Fears
[8] Gold futures fall to a 3-week low as dollar surges after Fed points to start of rate hikes in March – MarketWatch
[9] Slide 10: Gold Drops After Fed Meeting
[10] Slide 11: US 10-Year Yield Above Pre-COVID
[11] Explainer-The U.S. yield curve has been flattening: Why you should care (
[12] Slide 13: Total Claims
[13] Slide 14: Unemployment Claims
[14] Slide 15: Jobs Report
[15] Slide 16: Jobs Report Continued
[16] Slide 17: GDP & Inflation
[17] Slide 17: GDP & Inflation
[18] Slide 18: US Home Sales
[19] Slide 19: Consumer Sentiment