ETFs Tumble On Worst Start To Year Ever For Stocks

The tech rout has spread to the broader markets.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

Investors haven’t seen volatility like this in quite a while. On Monday, the SPDR S&P 500 ETF Trust (SPY) dropped nearly 4% intraday before staging a furious rally that pushed the ETF up 0.4% on the day.

It was a similar situation for the Invesco QQQ Trust (QQQ). In a matter of hours, a 5% loss turned into a 0.5% gain.

Wall Street’s “fear gauge,” the Cboe Volatility Index, spiked to almost 39—its loftiest level since October 2020, before retreating modestly.

Today, the markets look set for another wild ride, with stocks plunging again at the open.


S&P 500


Worries Pile Up

This type of volatility is a reflection of the worries that have piled up over the course of the last few months. Pockets of the market, like the high-growth/high-valuation tech group, have been under duress for quite a while.

The poster child of this weakness, the ARKK Innovation ETF (ARKK), has been sliding for the better part of the last 11 months, though its descent really started to accelerate in November. It’s no coincidence that, around that time, Fed Chair Jerome Powell made a surprisingly hawkish pivot in his monetary policy stance.

Ever since then, rate hike expectations have soared. The two-year Treasury bond yield has doubled since November, from half a percent to 1%. Meanwhile, traders expect at least three rate hikes this year from the Fed.

The anticipation of higher rates is what kicked off the carnage in high growth stocks, though the panic has since spread beyond just that one part of the market, and likewise, concerns have multiplied beyond just interest rates.

Now, along with higher rates, investors are worried about slowing economic growth, as well as geopolitical tensions related to Russia and Ukraine.




From Greed To Fear

What was a euphoric market only weeks ago is suddenly a very fearful one. A lot of it also has to do with rates; but much of it also has to do with price declines begetting more price declines.

The drawdown in certain high growth names has been gut wrenching, which has no doubt spurred panicked and forced selling by many, especially overleveraged hedge funds and retail investors.

At its worst point on Monday, ARKK was down a whopping 58.4% off its high set last February. It was down 31% in just the first three weeks of the year.

Even SPY was down 12% off its highs, putting it in what many consider “correction” territory, while the Vanguard Information Technology Index Fund (VGT) was down 18.3% off its peak level, placing the tech sector on the verge of what some consider a “bear market.”

According to Bloomberg, the S&P 500’s 11% decline through the first 16 days of January is its worst-ever start to a year in history.

More Than Just Rates

Lending credence to the idea that the market’s drawdown has been due to much more than just a fear of higher rates is the trajectory of the 10-year Treasury yield and market-based inflation indicators like the five-year breakeven rate.

Though it broke out to a new post-pandemic high of 1.9% last week, the 10-year high currently hovers near 1.75%—exactly where it was at its 2021 high last March, and only 5 basis points up from where it was in October, well before this cascading sell-off in tech and growth stocks began.


10-Year Treasury Bond Yield


Meanwhile, the five-year breakeven rate, a market measure of inflation, is currently around 2.8%, down from its 3.2% November high and only 3 basis points more than its high of last year.

In other words, the same signals are being interpreted much differently by the market today compared to a few months ago. Some things have changed (short-term rates are higher, for instance), though not as much as the market movements would suggest.

Perhaps what has changed most significantly is uncertainty. There are just more unknowns now. How inflation and the rate hike cycle will play out is a big unknown. How the Russia-Ukraine situation plays out is another unknown. The Treasury market is pricing in one scenario that is relatively benign, but that could change.

And with investors in a “sell first, ask questions later” mood, none of this is comforting for investors. That’s the nature of the market: Sentiment can shift on a dime, and is often is the biggest driver of performance over the short term.

Longer term, the outlook for profits, the economy and rates will start to come into clearer focus, and stocks will start moving based on fundamentals again.


Follow Sumit Roy on Twitter @sumitroy2

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.