Walking alongside people in the pursuit of their financial goals, MarsJewett remains future-focused, ascribing to an ever-renewing hope in human ingenuity and progress. This drives our and most investors’ perspective that financial markets, despite periodic downturns, produce positively over the long term. Simultaneously, it is understandable why people felt the ground shift in the financial markets in 2022. Last year was challenging, yet the upswing of the fourth quarter extended into January 2023. The stock market rallied off last year’s lows. Here is a look at five market indices’ performance in 2022 and the beginning of 2023.

Market Index	2022	’22 Q4	’23 YTD
S&P 500	-18.11 %	7.56 %	6.28 %
MSCI EAFE	-14.45 %	17.34 %	8.10 %
NASDAQ	-32.54 %	-0.79 %	10.72 %
Russell 2000	-20.44 %	6.23 %	9.75 %
Bloomberg US Bond Agg	-13.01 %	1.87 %	3.08 %

What happened last year? In quick summary, the broad stock market struggled in the first half of the year. By the end of the year, December 31, it had regained significantly. For instance, the S&P 500 ended down -18.11% for the year. But it rallied over 7.5% in the fourth quarter, meaning that it had been down over -25%. The precipitous fall occurred as the Federal Reserve began raising the Federal Funds Rate to fight inflation. This increases the cost of debt, shrinks discretionary spending, and historically has led to recessions as less consumption occurs in the economy.  The -25% drop in the S&P 500 indicates investors foresaw a recession. From 1948-2020 the average S&P 500 peak to trough decline in each recession has been -29% and the median decline has been -25%.¹ Since mid-October, however, the markets have climbed again. Here is a chart, showing the movement of the S&P 500 over the past quarter. Rallying quickly, the S&P 500 is up 13.7% from the beginning of October through January 2023.

S&P 500: October 1, 2022 thru January 31, 2023: Up 13.7% (finance.yahoo.com)

https://finance.yahoo.com/news/history-stocks-recession-102913314.html

Financial markets move fast. They move on good news. They move on bad news. They move on rumors and no news at all. And it often defies logic. Remember, the stock market is not the economy. It stands independently because the stock market is forward looking, not anchored in the present. From October ‘22 through January ‘23 the markets may have risen as investors realized the -25% price declines made the S&P 500 attractively priced and included a discount equivalent to most previous recessions. There are no guarantees things cannot get worse, but on the whole many investors believe the markets will move higher from current levels in a few years’ time. Therefore, even if the economy appears to struggle, the stock market may not. Confounding logic, because it is future-focused, it has a proclivity for progress.

Disclosures