2022 1st Quarter Volatility: 5 Charts that Matter

Stocks have gotten off to a very rocky start in 2022, with the potential for Federal Reserve rate hikes coming and the geopolitical worries over Russia and Ukraine only adding to the uncertainty. We don’t want to minimize the impact of that major geopolitical event, but there is some positive news out there, even though it might not feel like it.

With anxiety running high, here are 5 important numbers that should help calm some nerves and keep things in perspective.

  1. Starting with Russia and Ukraine, the truth is the U.S. economy and the overall stock market likely won’t be impacted much over the long-term by the recent conflict. In fact, stocks took most previous major geopolitical events in stride. Looking at more than 20 geopolitical events such as the attack on Pearl Harbor and 9/11, the S&P 500 Index fell only about 5% on average.


Source: LPL Research, S&P Dow Jones Indices, CFRA 10/31/21

All indexes are unmanaged and cannot be invested in directly.

Past performance is no guarantee of future results.

The modern design of the S&P 500 Index was first launched in 1957. Performance before then incorporates the performance of its predecessor index, the S&P 90.


2. The S&P 500 Index officially moved into a correction of 10% this week for the first time since March 2020. Since 1950, there has been an average of one 10% correction per year, so some volatility was likely simply due.

Number of 10% corrections in the S&P 500 Index by year:


Source: LPL Research, S&P Dow Jones Indices, CFRA 10/31/21
All indexes are unmanaged and cannot be invested in directly.
Past performance is no guarantee of future results.
The modern design of the S&P 500 Index was first launched in 1957. Performance before then incorporates the performance of its predecessor index, the S&P 90.


3. On average, the index sees a peak-to-trough correction of 14% in any given year, and even in up years there is an 11% correction on average. 

Source: LPL Research, FactSet 10/05/21

All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.


4. After a correction of 10-15%, the index has seen an average one-year gain off the lows of 22% and has gained in 12 of the 13 one-year periods.


5. Midterm election years tend to be among the most volatile out of the four-year presidential cycle. In fact, the average midterm year sees a peak-to-trough pullback of 17.1%, but stocks are up more than 30% off the lows on average a year later. Big annual declines are rare in mid-term election years though intra-year volatility is common.

Annual S&P 500 Gains/Losses Excluding Dividends Since 1960


Source: LPL Research, FactSet 10/31/21

All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

 

The good news is corporate America continues to see strong earnings. S&P 500 earnings per share in the fourth quarter are tracking to a 31% year-over-year increase (FactSet), roughly 10 percentage points above the consensus estimate when earnings season began. The top-line growth was extremely strong as well, with revenue growth up close to 15%. Lastly, profit margins saw very little compression, as companies with pricing power have been able to pass along higher costs and largely preserve those high margins, which are well above pre-pandemic levels.

Finally, COVID-19 trends are very positive as well, with new cases down more than 90% from the January peak (John Hopkins University). Many states are lifting mask mandates and a strong reopening will likely take place over the coming months and into the summer. Backlogs and bottlenecks continue to slowly trend the right way, and the labor force remains quite healthy as well.

The concerns and uncertainties are real, and the road ahead could be filled with more bumps and bruises. However, with U.S. consumers and businesses in solid shape, we think the U.S. economy could grow as much as 4% this year, much better than the pace of the last recovery. 

They say it is always darkest before the dawn, and long-term investors should keep this in mind as better times are likely coming in 2022.  



Important Information

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.

All data is provided as of February 24, 2022.

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 index data from FactSet.

All information is believed to be from reliable sources; however LPL Financial nor BentOak Capital makes any representation as to its completeness or accuracy.

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