Four months rough for stocks: The S&P 500 is off to the worst start to a year since 1939. Here’s what the pros say you should do now.

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To say this has been a perilous stretch for bullish stock investors on Wall Street lately is an understatement.

Marked by stomach-churning volatility and killer losses in once-popular tech trades, the S&P 500 recorded its worst start to a year, in the first four months of 2022, in more than 80 years. with the biggest drop in April, down 4.9%. , since at least 2002 contributing to the troubling and bearish tone.

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The broad market S&P 500 SPX,
-3.63%
closed Friday down 13.3%, the most disgraceful four-month period to start a calendar year since 1939, when it was down 17.3% (see chart).

Year

first 4 months % change

1932

-28.2

1939 -17.3

1941

-12.0

1942

-11.85

1970

-11.5

2022 -11.5 (from 10:44 a.m. ET)

2020

-9.9

1973

-9.4

1960

-9.2

1962

-8.8

Source: Dow Jones Market Data

The other major stock indexes aren’t faring much better. The Nasdaq Composite Index COMP, responsible for technology,
-4.17%
ended down 21.2%, the biggest such drop for the Nasdaq Composite since its inception in 1971.

The Dow Jones Industrial Average DJIA,
-2.77%
closed 9.3% so far in 2022, which would be the worst start to the year for blue chips since the COVID pandemic took hold in the United States in 2020, when it fell 14, 69%.

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Markets are crashing amid a litany of problems and sentiment that has been fragile, with a key measure of the overall health of the US economy, gross domestic product, contracting at a rate 1.4% annual growth in the first quarter, crippled by supply chain bottlenecks and a widening trade deficit, although consumer and business spending were bright spots.

In fact, the Personal Consumption Expenditure Index, or PCE, the Federal Reserve’s preferred measure for reading inflation, rose 1.1% seasonally adjusted in March the previous month, the Commerce Department said Friday.

Concerns surrounding Russia’s invasion of neighboring Ukraine have amplified unease about the health of the global economy, as lingering battles against COVID-19 continue to cripple parts of the world, including China.

Out-of-control inflation and a Fed eager to eradicate it with higher benchmark interest rates have also been a recipe for fierce price swings.

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However, there are some signs that inflation may slow. Headline inflation rose to 6.6% in March from a year earlier, an acceleration from February, but this development represented a decline if food and energy costs are taken into account, with an increase 5.2% last month compared to the previous year, according to the government.

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It’s worth noting that bonds, traditionally seen as a safe haven for investors when equities fall, haven’t offered much comfort. The iShares 20+ Year Treasury Bond ETF TLT,
-1.30%
is down 19.4% so far in 2022, the benchmark 10-year Treasury yield TMUBMUSD10Y,
2.889%
rose rapidly, approaching 3%.

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Against this backdrop, is the outlook as bleak as it has been over the past four months?

Baird market strategist Michael Antonelli said customers were checking in intermittently amid the market tumult.

“We keep reminding them that the world is a crazy place, that there is hardly ever a time when the returns are high and the risks low,” he offered.

“We also reiterate that owning stocks in a bull market is practice, while owning them in tough times is the Super Bowl,” he said.

Art Hogan, chief market strategist for National Securities, said market moments similar to this current downturn test investors’ resolve, referring to Thomas Fuller’s 17th-century observation that it’s darker before the ‘dawn. “We would offer,” Hogan said, “that we are at or near that darkest place.”

There could be glimmers of light ahead, according to Hogan, as the market becomes more accustomed to the Fed’s plan. The Federal Open Market Committee convenes its two-day policy meeting next week, May 3-4, when a substantial rise in interest rates is expected, possibly leading to an increase in the benchmark federal funds rate, currently in a range between 0.50% and 0.75%, by half a point percentage or even more.

“Markets sold ahead of the Fed’s first rate hike in March, only to rebound about 10% after the announcement,” Hogan said.

“We wouldn’t be at all surprised if we see a similar reaction after the May 4th communication, because the political fact of the Fed will replace the political narratives of the Fed that have scared the growth sector. Sell the rumor, buy the news,” the strategist said.

As for strategies, Hogan said in a research note on Friday, he recommends a “diversified equity allocation with a barbell approach with growth exposure on one side and cyclical exposure sensitive to the economy of the economy.” ‘other”.

A dumbbell strategy refers to an investment approach in which an investor invests across a spectrum of risk from high risk to low risk, with the goal of achieving a more balanced portfolio.

Will the environment be better for equities next month? Who knows.

But the feeling seems to be improving.

The final US consumer sentiment survey in April slipped to 65.2, but that 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. The most recent report produced by the University of Michigan reveals that Americans felt better about falling gas prices and were more optimistic about the future.

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