Moreover, price action since the onset of the pandemic has generally favored that strategy: every drawdown since the beginning of 2020 has been followed by a comeback to a new high.
But after a dismal start to the year for equities, and amid a backdrop of a capricious Federal Reserve gearing up to tighten monetary conditions and raise interest rates, dip-buyers anticipating consistent rebounds to all-time highs may have to temper their expectations — at least in the short term.
The S&P 500 posted a negative return of 5.26% for January 2022 – marking its worst month since the benchmark plunged 12.5% in March 2020 after COVID-19 upended the global economy.
LPL Financial chief market strategist Ryan Detrick points out that poor January performance has historically been followed by weakness in February. Data collected by LPL going back to 1960 showed that after drops of 5% or more in the S&P 500, February performance has been lower six of the past seven times, with muted returns over the final 11 months of the year. To add to that, February has been one of the worst months of the year for the index since 1950, with only September being worse.
“We are encouraged by the big reversal in stocks last week and we think stocks are in the process of forming a meaningful bottom,” Detrick said in a note. “But the truth is, this year is going to be much more volatile than last year and investors had better buckle up their seat belts if the first month is any indication.”
