Happy New Year!
Welcome to our January 2023 Market Update.
We have a lot to talk about, following a pretty rough year in the markets and what I feel is a lot to look forward to…so let’s get started.
As we’re all well aware, stocks declined 19.44% as evidenced by the S&P 500.1 The tech-heavy NASDAQ declined over 30%.2
Bond investments declined about 15% in 2022.3 These are investment I feel most investors view as offering less risk during periods when stocks are volatile. Unfortunately, they did not offer much safeguard.
What I believe to be our one glimmer of light were precious metals. Gold finished the year flat and silver rose 3%.4 I find it hard to believe that an asset that doesn’t lose was considered a good one!
So what may have caused all of this disruption? At the end of 2021, the Federal Reserve began a cycle of increasing rates at a high pace.5 One of the largest money managers in the world described the changing environment as Anti-Goldilocks, or what I feel is less supportive of investments.6 I believe this means borrowing costs rise, inflation increased and the world was still dealing with lingering effects from the pandemic.
The good news is that following a period of poor performance, investments may recover nicely. Over the past 40 years, there were 3 double-digit declines in stocks and they all lead to subsequent double digit rallies.7 In my simple opinion, bad markets may pave the way to opportunities.
Another silver lining to speak of, at the beginning of 2022 2-year US Treasuries yielded less than a percent. At the end of the year, they were yielding 4.4%. Going into this year, we may actually earn interest on our savings.
I’d be remiss to not address international investing. For the past decade+, I feel stocks outside the U.S. have largely underperformed. Since 2008, they have delivered a paltry 2.3% per year as opposed to 8.8% in the U.S.8 As I’ve shared before, an asset class that does poorly at the bottom of the list may subsequently gravitate to the top and do well.
While bad markets are never fun to experience, I strongly believe they are necessary to take the next step higher. Depending on your objectives and goals, I am excited about the potential for higher interest earnings, U.S. stocks, precious metals and finally, international stocks.
Before we wrap up, please let me offer a HUGE THANK YOU to everyone I work with. Thank you to the folks at LPL who continue to offer outstanding support and last but definitely not least, thank you to all of my wonderful clients as we embark on a new year.
Disclaimers and Sources
1 Source: Thomson ONE Reuters, S&P 500, 1/11/2023
2 Source: Thomson ONE Reuters, NASDAQ, 1/11/2023
3 Source: Thomson ONE Reuters, Barclays Aggregate Bond Index, 1/11/2023
4 Source: Thomson ONE Reuters, Spot Gold February Contract, 1/11/2023
5 Source: Fed approves first interest rate hike in more than 3 years, sees six more ahead. CNBC, 3/16/2022
6 Source: PIMCO, 3/23/2022, Cyclical Outlook, Andrew Balls
7 Source: JP Morgan Guide to the Markets, page 15, 1Q 2023
8 Source: JP Morgan Guide to the Markets, page 61, 1Q 2023
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. Bonds are subject to credit, market, and interest rate risk if sold prior to maturity.
Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.