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Let's Talk About the Sell-Off

Let's Talk About the Sell-Off

| April 27, 2022
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  • Stocks continue to move lower and volatility is high, but here are some talking points to help you with your concerned clients.
  • The S&P 500 Index has corrected 13.0% so far in 2022. The average year (since 1980) has corrected 14.0%.
  • Since 1980, 21 years have corrected at least 10% at one point during the year, and 12 managed to come back to positive. In fact, those 12 finished the year up 17.0% on average, so large reversals are possible.
  • This is a midterm year, which historically is more volatile, with more than a 17% correction on average. The good news is stocks are up more than 30% a year off those lows.
  • One worry is midterm years tend to find their ultimate bottom later in the year (August 14). Also, this quarter and next are two of the weaker quarters in the four-year presidential cycle.
  • Lastly, remember this bull market was the quickest to ever double off the lows. In fact, this bull market is still one of the best ever at this point of its life. Some consolidation and potential weakness is perfectly normal as the bull catches his breath.

U.S. Markets Open Higher Amid a Rocky Week for the Markets

  • On Tuesday, the S&P 500 Index fell to its lowest levels since mid-March while the Nasdaq Composite closed at its lowest point since late 2020.
  • West Texas Intermediate crude oil opened fractionally higher at $101.75 a barrel.
  • European markets are higher through midday trading as April German consumer confidence plunged given the Eastern European conflict coupled with sticky inflation.
  • Asian markets finished their session mixed as China’s COVID-19 outbreaks show tentative signs of stabilizing. 

Is a Recession Coming? 

  • In our latest LPL Market Signals podcast, Jeff Buchbinder and Ryan Detrick discuss why we still don’t see a recession taking place in 2022.
  • Corporate America is still quite strong, and balance sheets suggest the potential for better growth later this year. Meanwhile, the U.S. consumer is still healthy as well.
  • They also discuss the recent surge in yields and what it could mean for investors going forward.
  • Lastly, they discuss the impressive start to earnings season.

You can watch the full video directly from our YouTube channel here http://app.go.insidelpl.com/e/er?s=640398753&lid=20658&elqTrackId=E6A5A8830008498C26901A2D0B7A0282&elq=80a729d1852544aea1b48d6a46a723f8&elqaid=11548&elqat=1

Econ Quicktake: European Consumer Confidence Falls as European Growth Expectations Weaken  

  • European Central Bank President Christine Lagarde reiterated the “gradual” approach to addressing Europe’s inflation pressures, emphasizing the divergence with the Federal Reserve’s approach.
  • The forward-looking German consumer confidence released today’s forecast that May will likely plummet to new lows after April’s value was revised lower. The May Index value fell to -26.5, more than 3 points below the previous low of May 2020. Before the global pandemic, the Consumer Confidence Index average was 10. Overall, European growth will likely be stymied by the likely slowdown in Germany.
  • K. consumer confidence for April also fell to new lows and next month’s release will likely continue the weakening trend. The U.K. index is also below previous lows during the initial lockdowns of 2020.
  • As investors flee to safer havens, the dollar strengthened across major world currencies. The USD often benefits during times of heightening global risk aversion.

It’s Early, but Companies are on Track for Another Quarter of Solid Earnings Upside  

  • With 135 S&P 500 constituents having reported results, first quarter earnings growth for the index is tracking to a 7.2% year-over-year increase, 2.5 percentage points above the April 1 level.
  • We believe 2-3 additional percentage points of earnings upside would be a solid result given slowing economic growth, lingering supply chain disruptions, and intensifying cost pressures.
  • Outlooks have been reassuring given the tough environment, with the consensus S&P 500 earnings estimate for second (current) quarter increasing more than 1% in April.
  • The consensus for the next 12 months S&P 500 earnings estimate has impressively risen 1.2 percentage points during earnings season as companies continue to defy the skeptics and effectively manage through intense cost pressures. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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