Good-bye 2022! Good buy 2023?
End of 2022: DJIA 33,147; S&P 500 3840
2/2/23 – Previous Close: DJIA 34,054; S&P 500 4180
Good-bye and good riddance to 2022! It was ugly from start to finish in the financial markets. Stocks of all stripes lost ground – the S&P 500 (large-cap stocks) fell 18%, the Russell 2000 (small-cap stocks) fell 20%, and the EAFE (international stocks) fell 14%. What about bonds? Did they make money? The US Aggregate Bond Index fell 13%. Worse, if an investor owned the 30-year US Treasury bond all year, they saw the value fall 31%! Truly nowhere to hide!
I was encouraged that the “Five-year Rule” continued to benefit our clients as they reaped the benefits of long-term investing. However, for bond investors, the same bond index barely broke even over the past five years – gaining an average of a mere 0.02% per year. Even with a mild recession possibly on the horizon, there are many reasons to believe the stock market has already taken that into account. Recall our letter on November 1st about stock market performance after mid-term elections. Also, inflation is slowing, along with some areas of the economy. This likely means the Federal Reserve is near the end of interest rate hikes.
Additionally, it’s incredibly rare for the stock market to decline in the third year of a Presidential term (which this is) – the last time being 1939 and it was only down 0.4%. (I’ll leave you to ponder why this is such a pattern …)
There was lots of volatility in 2022. There will be some more in 2023, but probably not as much. My current thinking is the stock market can gain double digit returns - with stocks (again) providing better returns than bonds. As the year progresses with its expected ups and downs, it will be important to keep in mind another of our “rules” - “Investors must always be prepared – financially, mentally and emotionally for at least a 10% correction at any time.”
So, stay the course, ignore the gloom and doom media, and stick to “Herb’s Three Rules of Equity Investing” – own quality, be diversified, and invest in patience. As always, if your financial picture changes, let us know so we can adapt accordingly.
So, yes, Good-bye and Good Buy!!
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This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of HLO and are subject to change without notice based on market and other conditions. Diversification does not assure a profit or protect against a loss. Keep in mind that individuals cannot invest directly in any index. Individual investor’s results will vary. Past performance does not guarantee future results.
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The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
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