US stocks difficult to recover V-shaped
Movements of the S&P 500 (blue), Nasdaq (green) and Nasdaq (pink) indexes in 2022. Photo: Yahoo Finance.
The trading session on May 27 officially ended the S&P 500’s seven-week losing streak, the longest since 2001.
Concerns about the US economy slowing down, along with the tightening of monetary policy by the US Federal Reserve (Fed) were the main reasons leading to the strong decline of the stock market. The positive developments in the past week have made many investors question whether the worst period has passed and the market will recover as strongly as after the decline due to Covid-19 in 2020?
However, one strategist said he did not see the possibility that the market would repeat the previous impressive rally.
“There is not going to be a V-shaped recovery here,” Michael Antonelli, CEO and Market Strategist at Baird, told Yahoo Finance Live on May 27.
“V-shaped recovery usually occurs when the Fed loosens monetary policy or in the economy with fiscal support packages,” Antonelli said. “None of these two things are happening right now,” he said.
In the minutes of the early May meeting released last week, the Fed is expected to raise interest rates by 0.5% in the next two meetings in June and July. Previously, the agency raised interest rates by 0.5% in its last meeting.
Historically, similar periods of decline have typically lasted nearly a year, Antonelli said.
“The period of market decline from peak to trough lasted 338 days on average,” Antonelli told Yahoo Finance. “And the market period from top to bottom, then back to the top, usually lasts 600 days, which equates to more than 1.5 years.”
However, history also shows that the US stock market will recover after a period of deep decline. “The market will recover and we need to wait,” he said.
To date, the S&P 500 is down more than 13%, the Nasdaq is down more than 22% and the Dow is down more than 8% from its peak.
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