Stocks Down, Nasdaq Makes New YTD Low  Image: Bigstock Stocks closed sharply lower yesterday with the Dow and the S&P down by more than -2%, and the Nasdaq down by more than -3%. From their all-time high close to yesterday's close, the Dow is down by -9.67% (pullback territory); the S&P is down by -12.95% (correction territory); and the Nasdaq is down by -22.21% (bear market territory). The Dow remains above their 2022 lows (at their worst, they were down by -11.3%), and the S&P also remains above their 2022 lows, although not by much (at their worst, they were down by -13.05%). But the Nasdaq made new 2022 lows yesterday. With the Nasdaq now in a bear market, the question is what happens next for them? I should point out that when the indexes were last in a bear market (which bottomed in March 2020 of the pandemic), all of the indexes fell by more than -30%. Of course, it was a pandemic, and everybody feared the worst. But within days, the S&P exited their bear market (defined as a gain of 20% from their lowest close), the Dow did the same a week later, and finally the Nasdaq 3 weeks after that. We all know what happened next. The Dow soared by more than 97%, the S&P by 114%, and the Nasdaq by 134%. I point these stats out because the economic carnage we saw back then was staggering with Q2 2020 GDP down by -31.20%. But that's NOT what we're seeing today. Nothing even remotely close. In fact, full year GDP is forecast at 2.8%. So yes, the Nasdaq is officially in a bear market. But it might very well be as fleeting as the last time. Because the economy is strong. The labor market is strong. Incomes are strong. Consumer demand is strong. And corporate earnings are strong. Sure, inflation is at 40-year highs. And interest rates are on the rise. But that's because the economy is strong, not weak. And the hike in rates will benefit the economy by tamping down inflation. There are other things spooking the market, like China's lockdowns and how that could further impact the supply chain. But that won't last forever. And China's full year GDP is forecast at 4.4%. So challenges aside, we're still looking at a growing economy, both in the U.S. and the world. And it's important to keep all of that in mind while the headlines of doom and gloom are blaring. In the meantime, earnings season continues. And the event everybody is waiting for (the next FOMC meeting on May 4th, where the Fed is expected to increase rates by 50 basis points and begin paring down their balance sheet), is just one week away. So expect more volatility. But don't be looking for exits points. You should be plotting your entry points and getting ready for the next leg up. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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