The S&P 500 has fallen 5% in 2022: is now a good time to invest in it?

The S&P 500 has fallen by 5% so far in 2022. So, given its recent sluggish performance, is now a good time to invest in the American large-cap index?

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Following years of impressive gains, the S&P 500 has fallen 5.23% so far in 2022.

So, why has the American large-cap index performed poorly this year? And is now a good time to invest in the S&P 500? Let’s take a look.

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How has the S&P 500 performed recently?

The S&P 500 is a share index consisting of the 500 biggest companies listed in the United States. Members of the index cover a wide range of sectors including healthcare, communication services, real estate and energy. However, take a look at the indexes’ biggest members and you’ll see a list dominated by big tech giants. Apple, Microsoft, Amazon, Alphabet and Meta are all constituents of the S&P 500.

The index is generally considered to give a good indication of the performance of the US stock market as a whole. Since its creation back in 1957, the index has delivered impressive average returns of 10.5%, through to 2021.

In recent times, the index has enjoyed returns well above its historic average return. Back in 2019, the S&P climbed 31.49%. In 2020, the share index climbed a pandemic-defying 18.4%, while in 2021 it rose a massive 26.89%. 

However, during the first three months of 2022, the S&P 500’s performance has been sluggish, to say the least. That’s because the S&P 500 has just witnessed its worst quarterly performance in two years. The index now sits 5.23% lower than when the year began.  

Why has the S&P 500 fallen in 2022?

Falls in the S&P 500 have mirrored the weak performances of other share indexes this year.

Since 2022 began, the US Dow Jones Industrial Average has fallen 4.83%. In Germany, the DAX 40 is down 9.83%, while the French CAC 40 is 7.38% lower. 

In the UK, the FTSE 100 has bucked this trend somewhat following a half-decent March. Its value has risen 0.44% since the year began. However, the FTSE 250 has witnessed a poor performance similar to other global indexes this year. Its value is down 11.21% since the year began.

It’s no coincidence that stock markets around the world have struggled this year. That’s because global economies have faced a number of challenges in 2022, including rising inflation and the knock-on impact of a war in Eastern Europe. 

In the United States, in particular, the Federal Reserve has started to act to combat inflation. In March the US central bank decided to raise interest rates for the first time in four years. Plus, the bank signalled it is likely to make further rate rises later in the year.

In general, markets don’t like interest rate hikes, nor do they like uncertainty. This is partly why global stock markets have suffered during the first three months of 2022.

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Is now a good time to invest?

Given that the S&P 500 is now 5.23% ‘cheaper’ than it was three months ago, you may be tempted to invest in the share index. However, if you have this mentality, understand that stock markets rarely work in predictable ways.

Just because a share index – or an individual stock – has fallen, it doesn’t mean it can’t go lower. In other words, stocks that have recently fallen are just as likely to fall further as they are to rise in future. So, while it’s not necessarily a bad idea to put your faith in the S&P 500, it’s probably a bad idea to do so solely because of recent falls.

To learn more about this, take a look at our article that highlights the drawbacks of a ‘buying the dip’ strategy.

How can UK investors invest in the S&P 500?

If you’re looking to invest in the S&P 500, then you can buy an exchange-traded fund (ETF) that tracks the price of the index. To do this, you can open a share dealing account that provides an option to buy US funds. IG and Saxo Markets are two providers that allow investors to purchase US funds.

Alternatively, if, rather than putting your faith in the whole index, you’d rather buy individual US shares, then you can do this in much the same way as above through a share dealing account. However, instead of buying an ETF, you’ll need to buy shares in a company listed on the S&P 500. Be mindful that if you choose this route, you’ll have to complete a W-8BEN form to cover US taxes.

For more information, take a look at The Motley Fool’s guide to buying foreign shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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