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05/01/2024 — This past April has been cruel for stock investors, with the S&P 500® Index slipping 5.5% over the first three weeks of the month (April 1-19). The recent decline garnered headlines mainly because it interrupted the bull market’s impressive run over the last six months.

On April 15, the S&P 500 closed below its 50-day moving average for the first time since last November. That’s the longest streak since 2011 and the fourth-longest in 30 years. (See the accompanying chart.) But the drawdown also underscored the growing risk of a decline in a strong bull market. Investors should remember that losses and gains are integral to the market’s dynamics. Pullbacks often help recalibrate investor sentiment when it gets too bullish, tempering optimism and aligning underlying valuations with fundamentals.

Streaks of S&P 500 daily closes above its 50-day moving average

Different economic and financial currents converged in recent weeks to help set the stage for the stock market turbulence. First, volatility moved higher, notably as the VIX volatility index surged above 19 for the first time since October, highlighting how much investor sentiment has recalibrated. Second, rising geopolitical tensions pushed commodity prices higher, underscoring the threat of sticky inflation. Third, resilient economic data contributed to the increase in bond yields as investors adjusted to the reality of delayed Federal Reserve rate cuts (with the potential that rate cuts may not come at all in 2024.) However, despite the causes of turbulence, the fundamentals supporting the market seem intact.

While the April drawback was notable and painful, 5% declines in the stock market are quite common; they’ve happened 28 times since 2009, or around twice a year on average. Even so, the fundamental backdrop of positive earnings growth and resilient economic data should motivate the current bull market to continue. Long-term investors should remember that volatility is normal and that time in the market—not timing the market—ultimately drives portfolio performance.
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Author(s)

Mark Hackett, CFA, CMT

Chief of Investment Research, Nationwide Investment Management Group

Mark Hackett is the Chief of Investment Research for Nationwide’s Investment Management Group, bringing more than 20 years of experience in the asset management industry to the role.

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