U.S. Stocks Could be Negatively Impacted by Tumultuous January Trades

U.S. stocks have gotten off to a rough start in 2022 marked by turbulent trades in the month of January, especially for growth and technology stocks.

The S&P 500 plummeted by 5.3% in January which is its lowest since the pandemic first hit in March, 2020. Russell 2000 spelled a bearish outlook, dipping by over 20% less than its record high in November, as Nasdaq enters correction.

Investors have begun to withdraw profits after S&P 500 ended its best three-year run in 20 years in 2021 over looming Fed interest rate hikes, in what D. A. Davidson’s James Ragan terms as “the tightening tantrum”. "Even though they haven’t even started raising rates yet, I think it has led to investors just having some concern about what it means for the market,” he contends.

As per LPL Financial, this could spell doom for U.S. stocks for the rest of the fiscal year. Since 1950, a positive S&P 500 performance in January could imply a bullish outlook for the remainder of the year with an average growth of 11.9%. But when the index performs poorly in January, it could lead to a reduced growth of 2.7% for the rest of the year.

However, recent observations have implied otherwise with a red January spelling a bullish outlook 90% of the time.

According to Keith Lerner, Truist Advisory Services’ Co-Chief Investment Officer, "recent depressed investor sentiment readings and the sharp contraction in valuations seen over the past month have tended to be followed by positive market returns on an intermediate basis."