Endings Precede New Beginnings
If you’re reading this, it means you made it! You survived 2022.
But if you know me well, you know I would not set the bar of achievement so low that survival could be considered an accomplishment. However – for investors - surviving 2022 may be more of an accomplishment than you may think.
2022 was a bad year for the markets, but how bad was it? Did you know 2022 was one of the 10 worst years for the S&P 500? Specifically, it was the seventh worst year in the history of the index.
My industry spends a lot of time studying and touting average investment returns. These averages are important. If we didn’t have these averages, it would be impossible to do the financial planning work we do on your behalf. Depending on the period one is studying, the US stock market’s average return is typically 7-10% per year. It would be wonderful to earn a 7-10% return every year. Unfortunately, this rarely happens. In the last 25 calendar years, there were zero years when the S&P 500 returned between 7-10%. The last time the US stock market – as measured by the S&P 500 - delivered an “average return” was 1993.
I share this data with you to show that last year was bad, but it was not unusual. Markets are volatile. We’re fortunate that in recent years the market’s volatility has been to the upside – even despite a tumultuous world.
Now that 2022 is behind us, what does it mean for 2023?
We have the odds in our favor this year. What do I mean? Since 1946, the S&P 500 declined in 21 calendar years. In the year immediately following these declines, the stock market was higher in all but three years. Further, the average returns in the recovery years are considerably higher than the market’s long-term average.
Despite my optimism, I see increased discussion and fear about a recession in 2023 from most media outlets and analysts in my industry. I wrote a note in 2022 about the different types of economic indicators. The stock market is a leading indicator of the economy. This means the stock market is at its highest or lowest point several months before we see he economy peak or trough. A recession in 2023 does not mean the stock market needs to continue declining.
I agree the outlook for the economy is uncertain. Higher interest rates are slowing certain sectors of the economy. Time will tell if this slowdown is enough to be formally considered a recession, but I learned early in my career that the stock market is not the economy and the economy is not the stock market. They are related but they do not always move in tandem.
Inflation and interest rates were the key drivers that moved markets in 2022. I don’t see this changing in 2023. However, economic data is finally showing weaker inflation. This is good news because it will take pressure off the Federal Reserve to continue increasing interest rates. I believe higher inflation and higher interest rates become stable inflation and stable interest rates in 2023. I also believe there is a high probability the Federal Reserve lowers– or discusses lowering – interest rates by the end of this year.
The factors that were the biggest headwind for investors in 2022 may become a significant tailwind in 2023.
“Everybody has a plan until they get punched in the mouth”
-Mike Tyson
It is normal for difficult markets to raise questions and concerns about our plan and strategy. Despite the uncertainty around the markets and the economy, I am encouraged as I review financial plans with clients. In virtually every circumstance, last year’s challenging markets did not derail our plans.
I look forward to doing more of these reviews with clients in 2023. In the coming months, I will share some of the legislative changes around retirement accounts that may warrant additional planning.
“It’s funny how our goals are only as elastic as our sense of self, of who we are and what we think we can accomplish.”
-David Goggins
I recently finished the newest book by David Goggins titled Never Finished. I recommend both of his books, and I would start with his first book – Can’t Hurt Me – before reading the newer title.
As we embark on the new year, it is a popular time to evaluate and set new goals. This was a quote that challenged me, and I want to share it with you.
I wish you great success in the endeavors that matter most to you this year. I hope to learn more about what you want to accomplish as we connect throughout the year. Our team will do everything we can to help you achieve these goals. Thank you for allowing us to be with you on the journey.
Finally, please feel free to share this anyone that you think may benefit. If you have any friends, family, or business associates that would benefit our team’s perspectives, planning, or services, we would love to connect with them.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Michael Anania and not necessarily those of Raymond James.