Dow, S&P 500 headed for worst start to the year since 1970 – worst in history for technology

Wednesday marks the 100th trading day of 2022, a year that will likely be remembered for its historic market turmoil, as the megacap tech stocks that had dominated the market for so long in their harshest decline since the dot-com bust collapsed .

And with stocks once again deeply in the red after a painfully short-lived rebound, key US benchmarks on Wednesday were expected to end one of the worst starts to a year in the market’s history.

According to Dow Jones Market Data, the S&P and Dow are on track for their worst first 100 trading days since 1970. And for the Nasdaq 100, it’s its worst ever.

After years of outperforming, the Nasdaq has traded essentially straight lower over the past two months, shedding almost a quarter of its value with only a handful of brief but powerful rallies interrupting the relentless selling. According to Matt Weller, a market technician who studies short-term technical trends, the index has seen five countertrend rallies of 4% or more since March.

Analysts have blamed all the usual suspects: the inevitable burden of inflation, taxing a company’s future earnings and eroding its value now. The hawkish Federal Reserve, content to sit back and refrain from intervening to try to slow or reverse the bloodshed. And of course the war in Ukraine, which has contributed to higher food and energy prices, and the shutdowns in China, which have wreaked even more havoc on fragile global supply chains.

See: Markets are imploding because the Fed isn’t doing its job, says billionaire investor Bill Ackman

For investors contemplating whether to reach out and try to snag a falling knife, there’s plenty of context that could help put the 2022 sell-off in perspective.

For example, LPL Financial’s Ryan Detrick recently pointed out that midterm election years have historically been tough for markets. US stocks have lost more than 17% on average from peak to trough. On average, the market bottoms in these years occur later in the year.

To discuss some historical points of interest for the S&P 500, the hugely popular US stock benchmark, it’s worth noting that the index has fallen for seven straight weeks this year, a streak repeated only three other times in history gave: 2001, 1980 and 1970.

The market has also been extremely interesting in terms of volatility this year: the S&P 500 has seen intraday swings of 2% or more on almost 40% of the days so far in 2022.

The pace of the sell-off and the perception that the US economy will slide into recession sometime next year has left markets looking bleak. Few if any market bulls have come forward to call a bottom. And there is plenty of data that warrants caution.

Before the market’s recent attempt to recover from Tuesday’s correction faded, a team of Jefferies analysts prepared a note to clients analyzing expected returns for the S&P 500 one year after periods of historical losses, to test the conventional wisdom that Clearance sales like these often reward brave dip buyers.

In the note, analysts examined periods when the S&P 500 fell 10%, 15%, 20%, and 25% from its previous high. Using market data dating back to the 1950s, the analysts noted that historically, US stocks typically do not recoup losses within a year unless indices clear the 25% sell-off mark.

Perhaps this is one reason professional money managers remain so cautious. Bank of America’s latest Global Fund Managers survey showed fund managers increased their cash position by 5% over the past month, hitting a 20-year high in May. Recent polls have also confirmed the gloomy atmosphere, showing that an indicator of financial market risk is at its highest level since Merrill Lynch began polling, with fund managers expecting slowing economic growth and rising interest rates to continue to weigh on stocks.

That doesn’t mean there aren’t any more cops. A team of analysts at JP Morgan recently told clients that as much as $250 billion in “rebalancing” outflows from bonds into stocks could trigger another brief rebound in equities before the end of the second quarter. Dow, S&P 500 headed for worst start to the year since 1970 – worst in history for technology

Brian Lowry

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