We all have a Negative Nellie in our circle and they can be difficult to be around. They are negative and pessimistic about everything. It’s like they have a God-given talent for stealing everyone’s joy. Right now, the stock market is a bit of a Negative Nellie.
The market selloff we have been experiencing hurt even more on Tuesday, April 26th, when the S&P 500 Index was down 7.8%. This is odd because usually the month of April is good for the market. As I write this with just a couple of days to go, this could go down as the worst April since a 9.0% drop in 1970.
The reasons are the same as what we have been discussing, a slowing economy, a Federal Reserve Bank raising rates, continued supply chain worries, and war in Europe. All of this has combined to make this one of the worst starts to a year ever for both stocks and bonds.
We shouldn’t be all that surprised though. Historically midterm election years can be rough, down more than 17% on average peak-to-trough. The March 8, 2022 closing low, which amounted to a 13% correction, is still the low for the year as of now. The good news is historically a year from those lows’ stocks have gone up more than 32% on average according to LPL Research.
The oddity about this time is that stocks usually bottom out around August/September of midterm election years, not in the beginning. This makes me wonder if there is another low point later in the year. But the good news that is important for investors to remember is big gains a year off those lows have been quite common.
Many investors forget that double-digit declines during a year are normal. After only one 5% pullback all last year, markets have provided an unfriendly reminder in 2022. In fact, according to JPMorgan, since 1980, the average went negative 14.0% at some point during the years which makes this year’s 13.0% drop make sense. Taking this a step further, every year since 1980 the S&P 500 has been negative at one point during the year but ended the year positive 37 out of 42 years according to JPMorgan.
We knew coming into this year that more volatility was a possibility, but it is still frustrating to see it happening. The negative market days we’ve seen so far this year have been disappointing and have taken many investors by surprise. But it probably won’t be like this all year.
I remember once when I was a boy, I walked out of my house and was pretty grumpy and negative. I remember my mother’s wise words that only a mother can say, “Mister, you just turn yourself back around and go put on your happy pants and come back out here and try that again with a better attitude.” Because of a realistic fear of corporal punishment, I did go back in and come back with a more optimistic attitude. Same pants, but more positive.
Sometimes I think I need to have my mom tell the stock market to go get its happy pants on and be more positive. Nobody likes a Negative Nellie stock market.
Have a blessed week!
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
The economic forecast set for in this material may not develop as predicted and there can be no guarantee that strategy promoted will be successful.
