To the clients and friends of ProfitScore:

The expectation of heightened volatility for 2022 did not disappoint in January.  The VIX rose to just short of 32 in late January, its highest level since January 2021, settling at 24.38 by month’s end. 

According to weekly data published by the Fed, its balance sheet as of the first part of February was 8.8 trillion dollars.  That is a tremendous amount of money that is incomprehensible to think about.  Consider this- The height of a stack of 1,000,000,000,000 (one trillion) one dollar bills measures 67,866 miles, so a stack of the Fed’s current total assets would be 602,189 miles which is more than the distance to the moon and back. 

With inflation significantly above target and unemployment getting close to the target, the Fed is in a position to start raising rates and reducing its balance sheet.  In 2013, the mere announcement of tapering caused panic selling in the U.S. Treasury markets, sending interest rates surging, known as the taper tantrum.  Predictions aside, one thing seems almost certain: volatility is in our future. 

Below is a snapshot of the CME Group that predicts the rate increase as well as the link to the site – https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Let’s put the market landscape into perspective.  In January, we had tremendous volatility, tons of Fed talk, rates spiked, Omicron surging, slowing growth, continued supply chain woes, inflation, potential war, and waning stimulus!  Just to name some of the issues.  All of this caused risk assets and bonds to drop.  The SPY was down -5.3% and the 20+ Year Treasury ETF TLT was down -3.9%.

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