New Horizons

Published: January 17, 2023

TCM Client Update Jan 2023_Hopeful future (1)

Happy New Year!

I am very happy to be starting 2023 as 2022 was a difficult year on many fronts. It was the 7th worst year for the stock market since 1928 with the S&P500 Index down about 19.4% and certainly the worst year in the stock market since the financial crisis of 2008. However, I think that the market can recover this year just like it did in 2009 (up 23%) after the market crash of 2008 (down 38%).

What has been surprising is the performance of the bond market which is down across the board. Bonds, considered safer investments, are down anywhere from 5% to 28% depending on the maturity of the bond (length of time when bond is repaid) because of seven unexpected rate hikes by the Federal Reserve. At the start of 2022, the Fed was expected to raise the interest rate three times.

Bond market yearly performance in 2022 was the worst since the 1970s. As investments traditionally used to hold money for safety, the negative performance of bonds in 2022 has resulted in unexpected negative performance in traditionally safer portfolios.

Here is the performance data for some of the bellwether market groups in 2022:

Bond and ETFs 2022 12-Month Performance
Market Performance in the past 100 years

2023 is starting out well with a slight reduction in interest rates which results in an increase in bond prices. The stock market appears to be rebounding as well, following a softening of the price pressures from average hourly income and the benign CPI report of Jan 12, 2023.

Nonetheless there is a chance the economy will go into a recession later in 2023. If we do have a recession, I believe it is more likely to occur later in the year because the US economy was still growing at a healthy rate of 3.2% in Q3 of 2022. The US economy is like a large moving train that will have to first slow down and stop, before it can go backward. It will be shocking to see the US economy go into reverse unless there is a shock to the US economy (like an energy shock, worsening of the Ukraine war, etc.).

This chart developed by Ned Davis Research looks at the likely market performance under both a recession and a no recession scenario:

S&P 500 Index: Post-War Recession and Non-Recession Bulls Scenarios for 2023

I will be discussing the details with you during my phone calls in the coming weeks and months. As we all know, markets do rise and fall, but over the long run you do better by staying invested in the market. It is expected (rule of thumb) that every 7 to 12 years we will experience a bear market. Yet, over the long term, the stock market does better than other investments.

Thank you again and Happy New Year! As always, please reach out with your questions, thoughts, and feedback.