**Daily Market Recap:**
• U.S. markets continued their downward momentum on Friday, closing near the lows for the day. The tech-heavy Nasdaq remains the underperformer, down nearly 2.5%, weighed down by Netflix shares which fell over 20% on the day. The Nasdaq is now down nearly 12% since the start of the year, officially in correction territory. This comes even as yields moved lower today, with the 10-year Treasury yield down to 1.76% levels. Meanwhile, volatility continued to climb as well, with the VIX volatility index up 14% today to 29 levels, and up nearly 70% for the year so far.
• Markets have started the year with both volatility and notable investor nervousness. This comes as the Fed and central banks globally are more aggressively poised to raise rates and remove liquidity from the system. Nonetheless we continue to see broadly supportive economic fundamentals still: a healthy consumer, U.S. and Canadian economic growth still above-trend in the 3.5% – 4.0% range, and positive earnings growth likely for the year ahead. While we will likely continue to see bouts of rate volatility – which will likely weigh most heavily on the higher valuation and more speculative parts of the market – there are pockets of the market that may perform relatively better. Particularly in the first half of the year, these include value and cyclical sectors, as well as non-U.S. assets including emerging markets. Longer term, as economic growth slows and returns to trend levels, we expect growth stocks as well as defensive areas will return to favor as well; thus, we believe maintaining a balanced portfolio – and using market pullbacks to diversify as needed – is a prudent approach for investors this year.
• All eyes will be on the Federal Reserve meeting, scheduled for next Tuesday and Wednesday, January 25th and 26th. We expect the Fed to indicate the end of its balance sheet tapering program in March, as well as the beginning of its rate hiking cycle. We will be listening to hear how they balance recent economic softness – driven in large part by the omicron variant and its impact on activity – with higher inflation broadly. Notably, the Fed’s last set of economic projections showed core PCE inflation falling to 2.7% levels in 2022. As markets have priced-in four rate hikes in 2022, we believe there is a lower probability for the Fed to deliver a „hawkish surprise“ in its meeting next week; indeed, perhaps this sets up the Fed to deliver a more dovish message versus current expectations.

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