By Lewis Krauskopf

NEW YORK, (Reuters) – 2022 has seen a volatile start in U.S. stock markets.

The benchmark fell 5.3% in January, the largest monthly decline since March 2020, even though the market had recouped losses over the previous two sessions. While the tech-heavy Nasdaq continues to correct, small-cap shares have fallen over 20% lower than their November record high.

GRAPHIC: January to forget in the U.S. stock market, https://graphics.reuters.com/USA-STOCKS/JANUARY/zdvxoarknpx/chart.png Some investors are taking profits after the S&P 500 in 2021 finished its best three-year run in two decades and as the Federal Reserve is set to raise interest rates after equities were supported by the central bank’s post-pandemic easy money policies.

“In a very simple way, I would call it the tightening tantrum,” said James Ragan, director of wealth management research at D.A. Davidson. “Even though they haven’t even started raising rates yet, I think it has led to investors just having some concern about what it means for the market.”

This could spell doom for the rest the year. Since 1950, when the S&P 500 is positive in January, the index has climbed an average of 11.9% for the final 11 months of year, according to LPL Financial (NASDAQ:). However, when January is negative, the S&P 500 historically rises an average of 2.7% in the last 11 months.

GRAPHIC: How S&P 500 fares rest of year, following January, https://graphics.reuters.com/USA-STOCKS/JANUARY/dwpkrjakgvm/chart.png More recently, a red January has not necessarily meant a dour rest of year. In the past 10 times January was negative for the S&P 500, the index was positive in nine of those times over the next 11 months, with an average gain of 13.1%, according to LPL Financial.

Investors fled especially growth stocks in January. This includes tech names and others with high valuations that depend on future profits growth. The S&P 500 growth index fell 8.4% in January.

Value stocks, which have long underperformed growth, held up better with the S&P 500 value index down only 1.7%. Energy shares, which are expected to be among the biggest beneficiaries in an inflationary environment, were standouts, with the energy sector gaining nearly 19% for the month, the only S&P 500 sector in positive territory.

GRAPHIC: Less pain for value stocks versus growth, https://graphics.reuters.com/USA-STOCKS/JANUARY/byvrjxrenve/chart.png GRAPHIC: S&P 500 sector performance for January, https://graphics.reuters.com/USA-STOCKS/JANUARY/dwvkrjalxpm/chart.png Amid the sharp declines, investor sentiment about U.S. equities has fallen. The latest American Association of Individual Investors Sentiment Survey (AAII) showed that bearish sentiment over the direction of stocks reached its highest levels since 2013.

The market can have a negative indicator, such as sentiment. It could indicate that the threshold is lower for unexpected positive developments.

Keith Lerner (co-chief investment officer of Truist Advisory Services) stated that “recently depressed investor mood readings and the sharp reduction in valuations seen in the past month have tended be followed by positive markets returns on an intermediate basis.” GRAPHIC: Bears on the prowl, https://graphics.reuters.com/USA-STOCKS/JANUARY/gdvzynwdbpw/chart.png