Just 5 trading days accounted for 94% of the S&P 500’s decline in 2022

  • Just five trading days in 2022 are responsible for 94% of the S&P 500’s 21% year-to-date decline.
  • These days revolve around concerns about inflation, corporate earnings and the Fed.
  • “This ‘a few days makes the year’ framework is also a good framework to look at 2023,” DataTrek said.

According to DataTrek Research, the 20% drop in the S&P 500 in 2022 could be mainly attributed to a few days of significant decline.

In fact, just five days are responsible for 94% of the index’s losses this year. Those days saw markets fall as low as 4.3% and focus on inflation concerns, loss of big business profits and reactions to the Federal Reserve’s monetary tightening decisions. And those down days could shed light on how the stock market works in 2023.

“This ‘a few days makes the year’ framework is also a good framework to look at 2023,” DataTrek said.

It was the five trading days that brought the market down in 2022, according to DataTrek co-founder Nicholas Colas.

1. September 13 – S&P 500 down 4.3%

The stock market had its worst day of the year after August’s Consumer Price Index report showed inflation was higher than expected at 8.3% year-on-year. the other, against expectations of 8.0%.

2. May 18 – S&P 500 down 4.0%

A big Target shortfall highlighted shifts in consumer spending habits, supply chain issues and rising input costs. It was just a day after Walmart warned investors about the same issues. Target closed 25% that day.

3. June 13 – S&P 500 down 3.9%

May’s CPI report showed inflation was higher than expected at 8.6% year-on-year compared to expectations of 8.3%. The day threw the S&P 500 into bearish territory for the first time in 2022, with the index down 21.8% from its January 3 highs.

4. April 29 – S&P 500 down 3.6%

A big shortfall from Amazon in the first quarter, combined with a reduced forecast, sent the market tumbling and sent Amazon stock down 14%, its worst one-day drop since 2006. Good.

5. May 5 – S&P 500 down 3.6%

The stock market reversed sharply, making yesterday’s massive gain sparked by Fed Chairman Jerome Powell’s remark that policymakers were not considering interest rate hikes of more than 50 basis points. base. The Fed would continue to raise interest rates by 75 basis points six weeks later, while inflation was still on the rise.

According to Colas, the themes that drove most of the decline in 2022 will also be present in 2023, although they could instead lead to the upside if the Fed stops raising interest rates and inflation continues to rise. to calm down.

“At some point next year, stock markets are likely to experience outsized up days as investors conclude the Fed is done raising rates. The potential offset will be the number of down days resulting from earnings growth. disappointing businesses or geopolitical tensions,” he said. .

The sparring between big highs and lows next year means investors may not know whether 2023 will end in the green or the red until late next year.

But what is important for investors is that there are ultimately more up days than down days, which has not happened this year. Instead, there have been 34 more down days this year in the S&P 500 than up days. And that is what leads to losses.

“It is impossible to know in advance which days will ‘do the year’ in bull or bear markets. History only tells us that over time there are more green days than red days. and that is enough to tip the balance in favor of owning shares”, concludes Colas.

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