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The key to the stock market rescue is the Russian-Ukrainian war




  • The key to a US stock market recovery is an end to the Russian-Ukrainian war, according to DataTrek Research.
  • DataTrek pointed out that the stock market could experience further declines in the summer months after a weak start to the year.
  • “The best chance the S&P has of staging a comeback is a resolution of the Russia-Ukraine conflict and lower oil prices as a result,” DataTrek said.

The stock market’s rocky start to 2022 does not bode well for the rest of the year as momentum continues to remain negative, DataTrek Research said in a note on Tuesday, warning that an end to the war in Ukraine could be the necessary ingredient for a new rally.

The S&P 500 is down more than 16% year-to-date, while the Nasdaq 100 entered a bear market and is down 25% over the same period. The sell-off, combined with the old Wall Street adage “sell in May and leave,” suggests stocks could continue to slide into the summer months.

“History says that the lost years for the S&P typically begin with a January to May declining streak like this year down 5.8% on average and are followed by another average decline of 9.3% in over the next 5 months,” said DataTrek co-founder Jessica Rabe.

And if the S&P 500 enters the fall months as weak as it is today, there will be little chance it will be able to recoup all of its losses in the last two months of the year, according to Data Trek. Unless a geopolitical event combined with oversold conditions prompts investors to buy risky assets.

“It is important to note that the best snapbacks in the last two months of the year came after periods of oversold conditions due to geopolitical shocks: 1962 (+11.6%, after the end of the Cuban Missile Crisis ), 1990 (+8.6%, post-Iraqi invasion of Kuwait) and 2001 (+8.3%, post-9/11),” Rabe said.

That means the one big catalyst that could reverse most, if not all, of the stock market’s losses by the end of 2022 is a resolution to Russia’s war on Ukraine, Rabe said. Such a resolution would likely ease investor concerns about an escalation of the war between Russia and Western countriesin addition to lowering oil prices and helping to dampen inflation.

But comments from US Director of National Intelligence Avril Haines on Tuesday suggest that could be wishful thinking, as she told lawmakers that Russian President Vladimir Putin is preparing for a protracted war against Ukraine.

“At the end of the day, history shows that the best chance the S&P has to engineer a comeback is a resolution of the Russia-Ukraine conflict and lower oil prices as a result,” Rabe said.

But unless the conflict reaches a resolution, the “sell in May and leave” investment strategy will likely prove successful in 2022 given the already weak performance of equities, according to DataTrek.




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