Monday's Melt-Up Leaves the Market Muddled

The stock market had a great start to the week, with the Nasdaq Composite (^IXIC -0.03%) leading the way higher. Healthy gains for the Dow Jones Industrial Average (^DJI 0.32%) and S&P 500 (^GSPC 0.16%) showed the confidence that investors seemed to have as the month of January came to a close.

Data source: Yahoo! Finance.

Yet even with a two-day gain that was truly monumental in scope, Wall Street still had to contend with the implications of a January that failed to live up to expectations. Indeed, with significant losses for major market indexes, some investors wonder whether the rest of 2022 could prove to be a rebuilding year for stocks after strong gains in the past three years.

A tough month

January didn't deliver the kind of performance that investors had hoped to see. The Dow finished the month down more than 1,200 points, or roughly 3.3%. The S&P's decline was more pronounced, with a drop of 250 points working out to 5.25%. And the Nasdaq fell more than 1,400 points, closing the month with a nearly 9% downward move.

Image source: Getty Images.

Many of the day's top individual stock performers saw the same dynamic. Shares of Tesla (TSLA -2.04%) climbed almost 11% as the electric vehicle pioneer got favorable comments from Wall Street analysts. Yet the stock fell more than $120 per share for the month, working out to a drop of more than 11%. Streaming video giant Netflix (NFLX -0.20%) was another good example, with the shares similarly picking up 11% for the day but falling $175 per share, or nearly 30%, during January.

Moreover, the list of stocks down 20% or more so far in 2022 includes some massive names. E-commerce platform provider Shopify (SHOP -5.62%) has fallen 30% year to date, while Block (SQ -2.58%) is down 24% and Coinbase (COIN -4.53%) lost 25%. 2021 vaccine stock darlings Moderna (MRNA -4.38%) and BioNTech (BNTX -0.42%) have also been on the outs, both falling 33% in January.

What's next?

As is always the case, the market is composed of investors with different goals. Long-term investors are seeing relative bargains in the market, taking advantage of the opportunity to pick up shares of promising companies much more cheaply than they could have back in November and December. Even if share prices remain choppy in the short run, these investors aren't terribly concerned, as they remain confident in the longer-term prospects for the businesses whose shares they own.

On the other hand, short-term traders have a much shorter time horizon and are focused more on immediate market issues. For traders, factors like monthly inflows of automatic investments are often seen supporting the stock market near the beginning of a new month. But some see a down January as an omen of poor performance  for the entire year. Traders, therefore, can expect uncertainty in the near-term as well.

Unfortunately, there's no certain answer as to what the stock market will bring in the coming days and weeks. It's entirely possible that the rebound will continue, sending the market to new highs in short order. It's also possible, though, that what we've seen happen in 2009 and 2020 won't happen this time around, and markets will remain subdued for a much longer period of time.

In the end, though, stock markets have always historically found a way to move higher eventually. For investors, though, the rub is being ready to endure a potentially long period of lackluster returns in order to earn their eventual reward. That's harder said than done, and with a generation of investors never having had to wait long for gratification, there's every reason to think that markets could challenge them in ways they've never experienced before.