What’s Ahead for 2023

The year 2022 was certainly challenging for investors. For the first time since 1969, the values of both stocks and bonds logged a negative return. 

Here’s a quick snapshot of the 2022 returns of the major indexes. 

  • (-)19.44% - S&P 500 Index (the largest 500 stocks in the US)
  • (-)33.10% - Nasdaq Index (~3,700 stocks heavily weighted in technology)
  • (-)8.78% - Dow Jones Index (30 large US stocks)
  • (-)15.71% - Morningstar Global xUS (international stocks)
  • (-)12.03% - Bloomberg Aggregate Bond Index

But now that 2022 is in the rearview mirror, the big question is – what’s ahead for 2023? 

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Here’s what we know so far. In 2023, stocks and bonds will likely still face the same headwinds as they did in 2022, which includes rising interest rates, high inflation, and geopolitical risks.

In addition to those continuing factors, the markets will likely have to deal with new challenges, such as: 

  • A probable recession announcement in early 2023
  • Declining corporate earnings

It doesn't take a Ph.D. in economics to understand that’s not a great setup to the year. 

But positive market returns don’t require perfect economic conditions. Even in years where the market is wildly positive, there are often still warning lights flashing, ominous possibilities on the horizon, and plenty of pessimists spreading their message of doom and gloom.  

The bottom line is that there will be challenges in 2023, but positive returns can and have occurred even in difficult times such as this.

In the 95 year period going back to 1928, the S&P 500 has experienced:

  • 69 years of positive returns (73% of all years)
  • 26 years of negative returns (27% of all years)

Plus, it’s rare that negative returns occur two years in a row. Of the 26 negative years, only eight of them were back to back. That means that negative years are followed by a positive year about 68% of the time and by another negative year only 32% of the time.

From an investor psychology perspective, back-to-back negative returns are hard to stomach. Most investors would prefer a single year decline of 30% rather than two consecutive declines of 15%. This is where many already anxious investors throw in the towel and accept a life of fixed income returns on balances that have been drastically reduced by the market. 

If history repeats itself, the odds are in our favor of having a positive year. But there is the possibility that we will not. So this is the time to harden your resolve to stay invested no matter what. 

Successful investing is a marathon, not a sprint, and even extended bouts of volatility like we’ve experienced so far this year are unlikely to cause disruption to a well thought out plan. Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan we’ve built for you. 

Please know that our entire team will remain dedicated to helping you successfully navigate whatever 2023 throws at us. 

As always, don’t hesitate to get in touch if you need us. 

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