To say that this has been a dangerous area for bullish investors in Wall Street stocks lately is a bit of an understatement.
Marked by stomach instability and heavy losses in once-popular technology deals, the S&P 500 recorded its worst start in a year in the first four months of 2022 in more than 80 years, with the sharpest drop in April, a drop from 4.9%, at least since 2002, which contributes to the disturbing bearish tuna.
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The broad market S&P 500 SPX, -3.63% ended on Friday with 13.3%, which is the most unpleasant four-month period to start a calendar year since 1939, when it fell by 17.3% (see table).
Year First 4 months% change 1932 -28.2 1939 -17.3 1941 -12.0 1942 -11.85 1970 -11.5 2022 -11.5 (at 10:44 pm ET) 2020 -3.9 -9.9 -9.00 – 19.9 min. Data
Other key indicators of equity are not doing much better. The technology-laden Nasdaq Composite Index COMP, -4.17%, ended down 21.2%, the largest such decline for the Nasdaq Composite since its inception in 1971.
Dow Jones Industrial Average DJIA, -2.77% closed 9.3% to date in 2022, which would be the worst start to the year for blue chips since the COVID pandemic in the United States in 2020, when fell by an incredible 14.69%.
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Markets are declining amid a host of volatile problems and sentiment, a key indicator of the overall health of the US economy, with gross domestic product shrinking at 1.4% year on year in the first quarter, hampered by bottlenecks in the supply chain. supplies and increasing the trade deficit, although consumer and business spending were bright spots.
In fact, the Personal Consumer Expenditure Index (PCE), the Federal Reserve’s preferred measure for accounting for inflation, rose by a seasonally adjusted 1.1% in March from the previous month, the Commerce Department said on Friday.
Concerns about Russia’s invasion of neighboring Ukraine have heightened concerns about the health of the global economy as protracted battles with COVID-19 continue to plague parts of the world, especially China.
Inflation out of control and the Fed, eager to limit it to higher reference interest rates, are also a recipe for fierce price fluctuations.
See: The Fed’s interest rate increase of half a percentage point next week is baked in the cake
However, there are some indications that inflation may be cooling. Headline inflation rose 6.6% in March from a year earlier, up from February, but this is a decline when food and energy costs are taken into account, up 5.2% from the previous month. a year earlier, according to the government.
See: US inflation rises to 6.6% based on PCE index, but there is silver
It is worth noting that bonds, which are traditionally perceived as a place of refuge for investors with the fall of shares, do not offer much comfort. ETF TLT on iShares 20+ Treasury Bonds, -1.30% is down 19.4% so far in 2022 as the benchmark yield on 10-year TMUBMUSD10Y bonds, 2.889%, rose rapidly, close to 3%.
You need to know, “It’s so bad, it’s good.” This besieged stock market has a large asset on its side, strategists say.
Against this background, the prospects are as bleak as in the last four months?
Baird’s market strategist Michael Antonelli said customers are registering periodically amid market turmoil.
“We keep reminding them that the world is a crazy place, that there is almost never a time when returns are high and risks are low,” he suggested.
“We also reiterate the fact that holding stocks in the bull market is a practice, while holding them in difficult times is a Super Bowl,” he said.
Art Hogan, chief market strategist at National Securities, said market moments similar to the current downturn are testing investors’ determination, citing 17th-century Thomas Fuller’s observation that it is darkest before dawn. “We will suggest that we are in or near this darkest place,” Hogan said.
According to Hogan, there may be flashes of light as the market becomes more accustomed to the Fed’s plan. The Federal Open Market Committee is convening its two-day policy meeting next week, May 3-4, when it is expected to raise interest rates significantly, which is likely to lead to an increase in the reference rate on federal funds, currently in the range of 0.50% and 0.75%, by half a percentage point or more.
“Markets sold out in anticipation of the Fed’s first-class rise in March, only to rise by about 10 percent after the announcement,” Hogan said.
“We will not be at all surprised to see such a reaction after the May 4 announcement, as the fact that the Fed’s policy will replace the Fed’s political narratives that scare the growth sector. Sell the rumors, buy the news, “said the strategist.
As for strategies, Hogan said in a research note on Friday, he recommended “diversified allocation of equity with a barbell approach with growth exposure on one end and economically sensitive cyclical exposure on the other.”
The barbell strategy refers to an investment approach in which an investor invests in a spectrum of risk, ranging from higher risk to lower risk, in an attempt to achieve a more balanced portfolio.
Will the environment be better for stocks next month? Who knows.
But the mood seems to be improving.
The final survey of consumer sentiment in the United States in April fell to 65.2, but it still marked the highest reading in three months and the first improvement so far this year.
This could mean more green shoots in May for segments of the economy. A recent report from the University of Michigan found that Americans felt better about falling gasoline prices and were more optimistic about the future.
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