A head-spinning quarter came to a disappointing end, with major stock indexes suffering their worst performance in two years and other markets recording some of the most extreme moves on record.
The action reflects a sense of dislocation shared by many traders and portfolio managers who are confronting challenges not seen in years. Yet their unease has been offset in part by a fierce determination among many investors to take advantage of any price declines to add to positions in stocks, bonds and commodities.
Inflation has surged to its highest level in four decades, Russia’s invasion of Ukraine has rattled already stretched supply chains and the Federal Reserve has embarked on a rate-increase plan whose pace investors are struggling to handicap.
All three major U.S. indexes declined more than 1.5% on Thursday, with losses accelerating in the final hour of the session as traders dumped stocks to end the quarter. The declines have dragged the S&P 500 down 4.9% over the past three months, snapping a seven-quarter streak of wins. The Dow Jones Industrial Average and Nasdaq Composite have lost 4.6% and 9.1%, respectively, this year.
U.S. oil futures cleared $130 a barrel in early March, a level that flashed a warning signal for many economists. But the futures have since declined to around $100, a price that likely limits immediate economic damage but still marks the biggest quarterly gain since 2008.
“There are different parts of this market that rhyme with history, but really not even that well,” said
head of global equities at
T. Rowe Price,
which oversees $1.5 trillion in assets. “This is a truly unique time.”
Underpinning the uncertainty that permeated the first quarter was the Fed’s plan to raise rates. In doing so, the central bank removed a historic wave of stimulus that had driven stocks to dozens of records over the past two years and fueled a rush into some of the most speculative investments in the market.
That made the recent market downturn markedly different from the crash in 2020, which was abnormally short and severe.
“The changes to our market views are just as dramatic as they were when the Covid-19 pandemic emerged two years ago,”
multiasset class chief investment officer at Neuberger Berman, wrote in a note to clients after the Ukraine invasion, adding that he is pessimistic about stocks over the next year.
Few assets were left untouched by the volatility. Investors have dumped bonds, sending yields on corporate and municipal bonds as well as Treasurys sharply higher. The Bloomberg U.S. Aggregate bond index—largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—returned minus 6% in 2022 through Wednesday, headed toward the biggest quarterly loss since 1980.
Wheat prices have climbed 31%, logging the best quarterly performance since 2010. The swings in nickel prices during the Ukraine crisis were so large that the London Metal Exchange closed trading in the commodity after a huge run-up in prices inflicted severe financial pressure on producers that sold nickel as a hedge.
“That’s not rational behavior for an instrument, and that’s terrifying,” said
Investment Advisors, an investment firm specializing in trading volatility. He says he expects the turbulence to continue the rest of the year.
Adding to the pain for many investors was the decline among shares of big technology companies, the biggest market leaders of the past decade.
parent company, Meta Platforms Inc., lost about $232 billion in market value in a single session after posting disappointing earnings, the biggest loss in market value for a U.S. company in history. The next day,
recorded the biggest-ever one-day gain in market value.
Meta had its worst quarter since its shares started trading publicly in 2012 and has been one of the biggest losers within the S&P 500. Other former market leaders also struggled.
has lost 38% this quarter, its worst period since 2012.
PayPal Holdings Inc.
has also lost around 39%, its worst quarter on record, and
finished its worst quarter since 2011.
The S&P 500 outperformed the tech-heavy Nasdaq Composite by about 4.2 percentage points, the greatest margin since 2006, according to Dow Jones Market Data.
Other corners of the market have fared better. The S&P 500’s energy sector has soared 38% and notched its best quarter in history. Energy stocks like
Occidental Petroleum Corp.
have skyrocketed more than 95% and 65%, respectively.
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Some optimism crept back into the market recently. After the Fed raised rates in March for the first time since 2018, a familiar pattern emerged. Investors piled back into stocks and stepped in to buy the dips in shares of tech and growth companies, as well as more speculative bets that had suffered to start the year.
Bitcoin prices have rebounded in March. Meme stocks like
AMC Entertainment Holdings Inc.
have soared, gaining more than 30% for the month.
Some analysts said individual investors appeared to be piling back into the market, driving some of the gains, a move reminiscent of last year. A basket of stocks favored among retail traders that includes electric vehicle-maker
, for example, had gained 21% from March 14 through Wednesday, according to
analysts. Some institutional investors may have had to cover their bearish positions, accentuating the recent rally in tech, traders said.
The wild moves for big tech stocks continued in the last week of the quarter.
shares jumped 8% in a single session after it said it would seek approval for a stock split, a move reminiscent of the frenetic 2020 rally in its shares ahead of a previous split.
While a sharp decline early in 2022 put the Nasdaq Composite Index in a bear market, more than 20% below its recent high, the rebound of the past weeks has cut its losses roughly in half. The Dow Jones Industrial Average and S&P 500 are just around 6% below their highs.
Some investors remain puzzled by the recent surge in stocks and have been focusing on the apparent disconnect between equities and other parts of the market. A widely watched signal in the bond market, for example, has been flashing a warning sign that a recession may be ahead. Yields on two-year U.S. Treasurys briefly surpassed yields on 10-year notes on Tuesday for the first time since 2019. When the shorter-dated bond’s yield rises above that of the longer-dated bonds, it is known as a yield curve inversion.
“Are fixed-income markets right?” said Capstone’s Mr. Britton. “Are we going to have to reprice risk based on fixed-income markets predicting that we are going to go into a slowdown?”
Write to Gunjan Banerji at [email protected]
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