The S&P 500 is in the midst of its worst losing streak in decades, and some analysts believe the stock market may have much further to plunge before it reaches bottom.
"The mood has soured and fear is rampant, yet we still haven't seen capitulation," said Callie Cox, a U.S. investment analyst at eToro.
While the large cap index settled May 23 up 1.86% from its May 20 close, the modest rally will likely be a temporary reprieve from a historic sell-off in equities. Through May 20, the S&P 500 has declined for seven successive weeks, the longest consecutive run of weekly losses since 2001, when the market was still reeling from the dot-com bust.
The S&P 500 is down 17.1% from its all-time high, set Jan. 4, and briefly entered bear market territory May 20, defined as a fall of 20% from a peak. The S&P 500 remains up 77.61% from its most recent trough on March 23, 2020, in the early days of the pandemic.
Cox with eToro said the S&P 500 has seen 22 sell-offs of 10% to 20% since 1950, and the market may have been overdue for a pullback given historical norms. Still, this decline feels "especially chilly" since bonds and cryptocurrencies are seeing similar declines as well, Cox said.
"It's been a rough year, no matter how you slice it," Cox said. "There have been few places to hide unless you've looked into hard assets like commodities and currencies — two classes that retail investors don't have as much access too."
As of May 19, the S&P 500 was on pace to decline 17.7% on a total return basis in the first half of this year, its largest decline since the first half of 1970, when the index lost 20%.
The pain has not been spread equally, however.
Consumer discretionary stocks, which have been the index’s worst-performing constituents this year, were down 30.5% as of May 17, while communication services stocks were down 25% and information technology stocks were down 25%. "These are the problem children of the market," said Jeff Weniger, head of equity strategy at WisdomTree Investments.
Meanwhile, the energy sector, bolstered by soaring oil prices, is up 48.2% as of May 17, while utilities were essentially flat on the year.
Technology stocks will likely continue to face headwinds this year with supply chain disruptions, sour consumer sentiment and inflation continuing to eat into demand, said Steve Deppe, chief investment officer at Nerad + Deppe Wealth Management.
"If the market could speak, it would be saying the consumer of tomorrow is consuming less than the consumer of today, thus negatively affecting the profitability of consumer names and the likelihood of economic contraction," Deppe said.
Deppe expects the stock market to level off somewhat in the near term, but as growth slows and the U.S. enters a potential recession, the index will likely fall more significantly. Deppe said the S&P 500 could fall as much as 30% from its Jan. 4 high sometime in the third quarter if a recession takes root.