U.S. Stocks Are Off to the Worst Four-Month Start Since 1939

April just ended and it wasn’t good for investors. In fact, U.S. stocks are off to their worst four-month start since 1939. And the carnage has continued into the opening weeks of May. As of this writing, the S&P 500 is deep in correction territory, which is defined as a 10% drop (but less than 20%) from its most recent peak.

The Nasdaq meanwhile is well into a Bear market, which is when the market falls by more than 20% from its recent peak, down 25% since the start of 2022. Even the Dow Jones Industrial Average, which is an index that follows 30 large, publicly traded blue-chip stocks, is in bear market territory, down 11% year-to-date.

The commodity and financial-heavy TSX, Canada’s main stock index, is doing much better than its American peers, but it’s still 5.5% in the red in 2022.

Why Are Stocks Selling Off?

Stocks are facing numerous headwinds from rising interest rates, inflation that is at its highest level in 40 years, and fears of a recession. Russia’s invasion of Ukraine and China’s COVID-19 lockdowns are also undermining growth as investors attempt to determine how this will affect the economy and corporate earnings.

The stock-market sell-off is broad based too with technology stocks getting crushed, along with consumer, industrials, and even financial stocks taking a beating.

Is the Stock Market Usually This Volatile?

The weekly moves have not been entirely out of the ordinary. But the daily moves have been eye-watering. On Wednesday, May 4 the Dow Jones had its best day since 2020, rising nearly three percent. The S&P 500 jumped by the same amount. The following day both indexes had erased those gains.

The one-day rally came on the heels of the Federal Reserve saying it was not going to hike its key lending rate, which affects interest rates, by 0.75%. Investors, looking for any sign of optimism, sent shares higher.

But the next morning investors realized that the Fed still needs to raise its rates to tame soaring inflation. There are still concerns about a recession. Nothing really changed.

Those kinds of volatile days are rare. Since 1928, the median number of days where the S&P 500 gained or lost more than two percent in any given year stands at around eight out of roughly 250 trading days.

Four months into 2022 and investors have already stomached 14. Or, put another way, so far in 2022, one out of every six trading days on the S&P 500 closed with gains or losses of two percent or more.

Investors should expect the volatility to continue, with some analysts calling for the volatility to last the whole year.

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