The S&P 500 enjoyed its biggest one-day gain since 2020 last Wednesday, only to suffer its worst day in two years the following day. Clearly, this is a very nervy market.

Initial relief that the Federal Reserve didn't hike rates by three-quarters of a percentage point was followed by renewed focus on the negatives. Wednesday's 0.5 percentage point increase was the biggest in 22 years; more steep hikes are coming; the Fed is winding down its $9 trillion bond stockpile; and no one knows when runaway inflation will be tamed, or the effect the Fed's action will have on the US economy.

Buy-the-dip mentality

Even before Thursday's sell-off, it had become increasingly clear the old buy-the-dip mentality is gone. In April, the S&P 500 returned an average of -0.18 per cent the day after a down day, notes SentimenTrader's Jason Goepfert. April's buy-the-dip activity was the second-worst in 40 years, and similar behaviour has historically preceded weak returns in the months ahead.

Technicals aside, the Fed presumably doesn’t want stocks to rise – it wants to tighten financial conditions, not loosen them, so market volatility isn’t likely to die down any time soon.