Markets Experience Best And Worst Days Since 2022: What’s Next In Wall Street’s

Last week, investors faced a rollercoaster with dramatic market swings. What can we expect next for the financial markets?

The Recap: The SPDR S&P 500 ETF Trust SPY started 2024 up as much as 19.5% through the middle of July, a historic pace. In the second half of the month, the index retracted slightly as investors called a top on the Big Tech trade.

Then on Aug. 2, the Bureau of Labor Statistics released an especially weak July jobs report, renewing recession fears. The S&P 500 fell 1.86% that Friday.

On Monday, the index plunged 2.91%. The fall, the S&P 500’s largest since September 2022, accompanied the collapse of the yen carry trade and the intensification of recession anxieties.

On Tuesday, the index rose 0.92%, then on Wednesday it fell 0.67%. Thursday’s trading session was marked by a gain of 2.31%, the S&P 500’s best day since November 2022.

The NASDAQ Invesco QQQ Trust QQQ saw even bigger swings.

Historical Precedent: Wild periods of gains and losses are not unusual in the markets, though they usually go along with macroeconomic uncertainty, according to data from Yahoo Finance. The market’s sustained period of stability from late 2022 onward makes the recent price action especially noteworthy.

The most striking example of frenzied buying and selling was COVID-19’s onset in 2020. The S&P 500 first faced a 10% correction in the week of Feb. 24-28. Investors bought the dip; the S&P 500 bounced 4.3% on March 2, lost 2.86% on March 3 and gained 4.2% on March 4.

From there, chaos ensued. The S&P 500 dipped further on March 5 and 6 before falling nearly 8% on March 9. The next day, it appreciated 5.1%. Then it shed 4.8% and 9.6% on successive days. On March 13, the S&P 500 added 8.5%. On the next trading day, the index fell a historic 10.9%.

Investors were treated to a period of sustained volatility through April.

Similar price action, albeit to a lesser magnitude, could be observed from April to December 2022. The market’s behavior was accompanied by rapid hikes in the federal funds rate and the inversion of the yield curve.

The 2008 financial crisis is another comparable example. The market sustained daily losses of as much as 9.84% and gains as high as 14.52% shortly after the collapse of Lehman Brothers in September. Volatility fizzled out in mid-to-late 2009.

What’s Next?: The lesson learned is that volatility generally follows volatility.

The same behavior could follow in the coming weeks — investors will closely watch macroeconomic indicators, company earnings, a Federal Reserve interest rate decision and geopolitical conflicts. Any aberrations, positive or negative, could result in a dramatic price action.

It is also worth noting that 2024 is an election year, which typically leads to additional volatility in the markets. The news cycle has been particularly fast this summer and will likely intensify leading up to the November elections.

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Image created using artificial intelligence via Midjourney.