US Stocks Off to a Rocky Start After a Volatile January

    Photo: Reuters [via Al Jazeera]

    The Facts

    • January saw the poorest performance in US equity markets since March 2020, when the pandemic abruptly closed many businesses.

    • Stock valuations tumbled as investors fear rising interest rates and inflation, both of which might dampen consumer spending, economic activity, and ultimately corporate revenues.

    The Spin

    Narrative A

    US stocks have been over-sold, and then over-corrected. Investors are now sitting on piles of cash that they'll pour back into equities, paving the way for a "violent" rally in the coming months.

    Narrative B

    The rise of ETFs has fundamentally altered equity markets. Greater ETF ownership means lower overall liquidity; when there's less free capital to absorb losses, volitility rises as we saw in January. These structural changes are here to stay, as is greater volitility.

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