Market Insights- January 2023

January 31, 2023

Market Commentary Summary:

  • In 2022, the S&P 500 index of large US company stocks had declined 19%, effectively erasing 2/3 of the market’s 27% gains from 2021. So, we were back to where our stock valuations roughly were in May 2021. And the stock market run up at the end of 2021 came after a 90% increase in value over that time horizon.
  • Bonds also declined in 2022 by about 13%, something that had not happened in tandem with stock market declines in 50 years.
  • Meanwhile, international stocks declined in 2022 by “only” 14.45% compared to the 19% for US stocks; in the 4th quarter of last year, international stocks increased 17% compared to 7.5% for US stocks.
  • Both stocks and bonds have begun to regain valuations, though it’s a bumpy ride and it’s unclear at to whether there will be more downturns in 2023. Average stock market returns have been about 10% over the past 100 years. With the stock market still considered to somewhat overvalued, the long-term trend for stocks over a 10-year time horizon is projected to be closer to 5.5%.
  • According to Charles Schwab’s analysts, their current 10-year outlook highlights better opportunities for bonds and a steady outlook for stocks. They continue to project better return opportunities for international stocks.

For our clients, we continue to maintain diversified investments in US and international stocks and bonds and cash with the proportional blend of each tailored to your comfort level with stock market risk, as well as your “need” for risk. We monitor cash needs on an ongoing basis to ensure that money you need in the short term is in more conservative investments such as short-term treasuries and CDs earning interest rather than being subject to market fluctuations.

Keep us apprised of any upcoming spending needs, market concerns, and changes in circumstances so that we can work with you to situate your investments appropriately.