An advisor’s guide to understanding the current decline in stocks
Mmarkets ended last year volatile and have had a rough start to the year so far; the S&P 500 is down 8% after hitting a high on Jan. 4, underscoring the end seen in both market volatility and investor sentiment, writing Mark Hackett, head of investment research for Nationwide’s investment management group.
The current decline is historically modest, similar to those that occurred in February, September, and November of last year, and declines similar to those currently being experienced have occurred repeatedly for the S&P 500 crisis. which ended in 2008, the S&P 500 fell 27 times with declines of 5% or more, averaging two per year, while larger corrections were far less common.
Source of images: Nationwide Blog
Significant market corrections of 10% or more have only occurred eight times since 2009, says Hackett, and have been triggered by events such as the European debt crisis, the US credit downgrade, market concerns emerging markets, a slowdown in China accompanied by a rise in rates, and the outbreak of COVID.
“It is too early to determine if the current decline is merely noise after a strong year in 2021 and some developing uncertainty, or if the decline is more generalized,” writes Hackett. “Market catalysts have turned from positive to negative, while the S&P 500 is still trading high at 20x forward earnings. Market internals paint a more bearish story, with an average S&P 500 firm down 15%.
Markets remain volatile as investors continue to be uncertain about future economic prospects and earnings growth. Everything looks set for a positive catalyst to rebound markets, but Hackett doesn’t think that will come from monetary or fiscal policy, or earnings reports at this time.
“A rebound in the economy, with consumer demand improving after the peak in Omicron business and inflation moderating, is the most likely positive catalyst, although the timing is uncertain. Stock markets are likely to remain volatile until it happens,” says Hackett.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.