After Amazon (AMZN) stock had its worst single-day since 2006, the S&P 500 Index is off to its worst start since 1939. According to Stock Rover*, Amazon’s stock price fell about (-14%) for the week because of a quarterly loss of $4 billion. However, investors are still up 7.4% in the past 2-years.

Source: Stock Rover*

In the meantime, the S&P 500 Index is down (-14.7%) year-to-date (YTD). This performance is the worst start since 1939 when the Index was down (-17.3%) in the first four months. The year 1932 was the worst at (-28.2%).

All The Indices Are Down

All the indices are down in the first four months. The Nasdaq continues its downward trend and is clearly in a bear market territory. The Nasdaq and the Nasdaq 100 Index have fallen (-21.1%). The small-cap Russell 2000 Index is down (-16.7%), and the Dow Jones Industrial Averages (DJIA) has dropped (9.2%). On the other hand, the Dogs of the Dow 2022 are performing well on a relative basis. The investing strategy is actually up 0.8% YTD.

Source: Stock Rover*

The Dividend Growth Investing Strategy is Doing Well

The Dividend Kings 2022 have decreased only (-7.4%) YTD. In fact, all dividend growth investing strategies are performing better than the major indices or growth stocks despite the worst start since 1939.

The Dividend Aristocrats in 2022 have dropped 6.0%, making it the best performing of all the dividend growth strategies. The 2022 Dividend Champions are down 6.6%. The Dividend Contenders in 2022 have declined (-7.6%). Lastly, the Dividend Challengers 2022 are the worst-performing (-9.0%).

The chart from Stock Rover* below shows the YTD performance of all the dividend growth investing strategies.

Source: Stock Rover*

Why Is the Stock Market Performing Poorly?

There are three reasons the stock market is performing poorly: rising interest rates, the war in Ukraine, and the resurgence of Covid-19 in China.

Rising Interest Rates

The first reason is the US Federal Reserve has been tapering since October 2021. Tapering means the Fed reduced the dollar amount of US Treasuries and mortgage-backed securities (MBS) that it was buying. This process was rapid, and by March 2022, the Fed had exited the market. This change caused an upward pressure in interest rates.

Next, the Fed increased the Federal Funds Rate by 0.25% in March 2022. This increase was the first since 2018. The Fed is increasingly hawkish and will likely raise rates by at least 0.5% in May 2022.

Lastly, the Fed will reduce its $9 trillion balance sheet at a seemingly aggressive rate.

The bottom line is the Fed is responding to the highest inflation in decades. As a result, they are removing stimulus from the US and global economy. The effect is they are not creating dollars and inflating asset prices. This change immediately impacted liquid and tradeable asset prices, which have declined. Furthermore, it is making debt more expensive which has a more significant impact on growth stocks.

Interest rates have increased dramatically since the start of the year. Moreover, short-term rates have risen severalfold. For example, the 3-month T-bill yielded 0.08% on January 3, 2022, and 0.85% on April 29, 2022.

War in Ukraine

The following reason stocks are off to their worst start since 1939 is the war in Ukraine. This war was arguable a Black Swan event. It was unpredictable, and the duration is unknown. The global media and even expert military analysts predicted a fast outcome. However, the war is now in its third month.

The war is influencing oil and natural gas prices causing spikes and volatility. Much of Europe relied on Russia as a primary supplier of natural gas. Energy costs impact companies’ inputs and eat into consumers’ discretionary budgets. Hence global stock markets are pricing in lower margins and lower profitability.

A Resurgence of COVID-19 in China

The last item affecting stocks is the resurgence of COVID-19 in China. Cases are rising, and some major cities are on lockdown. Some of these cities are major manufacturing centers. Consequently, this action has caused supply chain disruptions for almost every company. In addition, lockdowns have reduced consumer demand leading to lower sales. As a result, there is concern that China may enter a recession, especially since US Treasury yields are now higher China government bond yields. This fact may cause capital outflows as money seeks better returns.

Bonds Are Not a Refuge

When the stock market is volatile or declining many investors move into bonds. However, the iShares 20+ Year Treasury Bond ETF (TLT) was down 19.1% YTD. The iShares Core US Aggregate Bond ETF (AGG) was down 9.4% YTD. Both returns are no better than stock returns.

Only gold seems to be holding value and is up 3.5% YTD.

Final Thoughts on Worse Start Since 1939

There is an argument that risks are mostly priced, and it is a good time to invest. The latest reading on the Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE), showed inflation hit a record 6.6% in March 2022 but take out energy and food inflation growth moderated. Whether this is peak inflation or not will be seen in the next few months. Nevertheless, the Fed’s actions may be having the intended effect.

In the meantime, the dividend growth investing strategy has performed relatively well in 2022, and I am personally staying the course.