Monday, March 21, 2022
Last week was quite the week for stocks, as the S&P 500 Index gained 6.2% for its best week of the year and best weekly gain since the week of the US election in early November 2020.
In the process there were some very positive signs for the bulls.
First up, a bad start to a year isn’t always a bad thing. In fact, on the 50th trading day of the year (Tuesday, March 15) the S&P 500 was down 10.6% for the year, for the sixth worst start to a year ever. “A bad start to a year isn’t a death sentence,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Actually, we’ve seen some enormous bounces in previous years after bad starts, with 2009 and 2020 some recent examples, so don’t lose hope yet.”
Looking at the five years to start off worse than 2022 shows that a potential big bounce is possible, with the rest of the year up nearly 25% on average, versus the average return of less than 7%. Yes, 2001 and 2008 both had numbers in the red the rest of the year, but those years were recessions, something we don’t see happening in 2022, although the risks for 2023 have increased recently.
As shown in the LPL Chart of the Day, the S&P 500 gained at least 1% on four consecutive days last week, a very rare occurrence indeed. “This was only the fifth time in history the S&P 500 gained at least 1% on four straight days,” explained Detrick. “And the good news is future returns have been spectacular, up more than 20% a year later every single time and up an average of 28.0%. In other words, blasts of strength like we saw last week aren’t the middle or the end of bullish moves; they are usually the beginning.” Anytime you can say the last two signals were in 1982 and the US election in November 2020 we don’t want to ignore it, as both of those times kicked off strong extended returns.
Lastly, volatility was quite high recently, but it has calmed down now, another bullish signal. Not surprisingly, investors were on edge due to a more hawkish Federal Reserve Bank, 40-year highs in inflation, and war in Eastern Europe. That brought with it a higher CBOE Volatility Index (VIX), with the VIX closing above the high water mark of 30 for 11 consecutive days. The rally last week saw a big drop in the VIX, as fears calmed.
Looking at previous times the VIX was above 30 for at least two weeks and then had a subsequent close back beneath 30 showed quite impressive future returns. The S&P 500 Index was higher a year later 11 out of 12 times with an average return of nearly 22%, something that could indeed have bulls smiling.
After the rough start to 2022, last week’s move higher was a nice change. By no means is this an all clear signal, but the action last week could be a clue that better times could be coming.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking 1-05258379