(Dynamic) The market had a lot of problems in 2022 and is looking for some resolutions to come in 2023.
As per the performance table below, “Stock Market, Bond Market and 60/40 Portfolio,” there were few places for investors to hide in 2022. Perhaps the following resolutions could help us reverse this trend in the new year:
- Moderated Interest Rates: While rates may remain elevated, the hope is that the frequency and size of hikes will come down and we’ll establish a level in which everyone is comfortable.
- Lower Inflation: It’s a relative game. Inflation may persist but directionally, should continue to move lower as the heightened interest rates slow things down.
- Improved Supply Chains: Consumer demand is still strong, and production lines continue to improve and expand to supply those goods and services.
- Decreased Pandemic Cases: COVID is still an issue across the globe, but just like in the U.S., it will continue to get better with time.
- Resolved Geopolitical Conflict: At this point, just about any favorable sentiment from the Russia/Ukraine conflict with be beneficial for global markets and economies.
BONUS: No Recession. The job market remains strong, the housing market has settled down, the Fed is cautious in its approach with interest rates and consumers are still spending money. These signs point to a potential of a “soft-landing” in which the Fed puts out the fire of high inflation without creating a drought for the economy.
Forget 2022 and look to the future
2022 was truly a remarkable year. Remarkably terrible for the markets, that is. We know it’s rare for stocks and bonds to fall together, but to fall by the magnitude that we experienced in 2022 has never been seen before.
Given the cyclicality in the markets, it’s unlikely that we’ll see this performance continue for too long, and we may see bright skies ahead. If nothing else, the power of diversification, and the relationship between stocks and bonds, should start to revert back to normal.
But to see how truly unique 2022 was, let’s take a look at annual returns for stocks and bonds, dating back to 1928. Here are some fun stats from the data:
- Stocks and bonds were both down in only five calendar years. (1931, 1941, 1969, 2018, 2022)
- Stocks and bonds were both down more than 10% in only one year! (2022)
- Stocks had their fifth largest loss in history. (1931, 2008, 1937, 1774, 2002)
- Bonds had their worst year in history. (2022, 16.5%)
- The 60/40 had its third worst year in history, and the other two were in the ’30s. (1931, 1937, 2022)
Again, these numbers from 2022 are truly unprecedented and we’re looking forward to more normalcy in the future.
Stock Market, Bond Market and 60/40 Portfolio
Annual Returns 1928-2022 
Source: Charlie Bilello, as of 12/31/22. Past performance is no guarantee of future results.
As always, Dynamic recommends staying balanced, diversified and invested. Despite short-term market pullbacks, it’s more important than ever to focus on the long-term, improving the chances for investors to reach their goals.
