It was quite a month. The S&P 500 was down nearly 9% in April, its worst month since March 2020, when the pandemic wreaked havoc with stocks. It was worse for the Nasdaq, which was down more than 13%, its worst month since October 2008, when the Global Financial Crisis wreaked havoc with stocks. Even more significant pain was felt by the "Big 5" largest stocks in major indexes [Apple, Microsoft, Alphabet (Google), Amazon, and Tesla], which were collectively down nearly 20%, their worst month ever as a group. Amazon was in the crosshairs late last week, having announced that it had overbuilt during the pandemic, and is now experiencing waning demand…which may be a canary for broader consumption/inflation trends ahead.
Peeling a layer or two of the market onion back, underlying weakness has been evident for quite some time—it's just that lately, the largest-capitalization names have not been spared. Below is our crowd-favorite drawdowns table, and as shown, the average member drawdown from both year-to-date and 52-week highs is between -21% and -47%. In other words, the average member drawdown of -21% for the S&P 500 puts it in bear market territory, even though the index decline has skirted that moniker for now.
Source: Charles Schwab, Bloomberg, as of 4/29/2022. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results. Some members excluded from year-to-date return columns given additions to indices were after January 2022.
It's the third-worst four-month start for the S&P 500 since WWII, while it's the worst in the Nasdaq's shorter history. Looking back at historically weak starts of at least or near this magnitude, average and median returns going forward were weaker than average. Volatility has been especially pronounced for the Nasdaq 100. Bespoke Investment Group (BIG) looked at its average daily moves since its inception in 1971, and there were only three periods with loftier readings: dotcom bust era around 2000; GFC era in 2008; and debt downgrade era in 2011.
BIG also looked at the most-highly correlated years with 2022 so far. Of the 10 most similar, nine were after WWII. Again, subsequent returns were mixed-to-weak the following year. Based on the "average" patterns of the prior 10 periods, the S&P 500 tended to have further declines over the next 100 trading days, before starting to show signs of stabilization. As to whether the S&P 500 is on its way to an index-level bear market, the decline so far isn't much of a "tell" based on history. BIG compared the S&P 500's performance over the past 80 trading days to the first 80 trading days of prior post-WWII bear markets from all-time highs. In the vast majority of those prior periods, the index was down less from its all-time high than where it is now.