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  • Writer's pictureSteven Schoenberger

2022 Year-End Market Update

Each quarter we pause to reflect on the market performance over the preceding months, and to share any insights we may have about what possibly lies ahead. At the end of the year, we perhaps reflect a little harder, and try to compose a narrative that summarizes the year we completed. For 2022, that summary could be brief: A rough year for the market with no clarity about what is ahead.

In 2022 the S&P 500 returned -19.44%, one of the 10 worst annual returns in the past 90+ years. Years that had worse returns are so famous, most of them have names: The Great Depression (1930 and 1931), The Oil Embargo (1974), The Dot-Com Bubble (2002, which was also post-9/11), and the Financial Crisis (2008). Despite the fact that there were many significant political, global, and financial events in 2022, it does not seem like a year that will warrant a historically significant name.

So, is this good news or bad news?

Obviously no one knows and no one can know. But, we can look at history to try to glean some insights. Unfortunately, just like financial headlines, history seems to tell two stories, one positive, and one negative.

The positive story is that in the year immediately following each of the 10 worst returns for the S&P, the market has done significantly better 70% of the time with an average return over 30%. If you look at the ensuing 5 years, from each of the worst 10, the total return was, on average up over 50%, and was positive in every instance other than the period from 1937-1942 which was during WWII, and when the total return was just about flat.

The negative story is that many of the years with the 10 worst returns were not stand-alone years, but coupled with preceding years that had weak or negative returns too. So, a market bear might assert that 2022 was the beginning, not the end, and a longer period of negative market returns that will persist. There are certainly challenges head, but how they will impact the economy and be reflected in the market, is yet to be seen.

Since we cannot predict the future, how are we advising investors?

We continue to take a long term view and encourage investors to first establish a prudent cash reserve; then pick an appropriate stock/bond portfolio mix that is appropriate for 3-5 years or longer. If there are market pull backs, we will rebalance as needed to maintain allocations across asset classes. And, as always, if circumstances change, we will be available to review plans and adjust as needed.

Exciting things are ahead and we want to wish everyone good health, good times, and hopefully good returns in 2023!

-Open Door Financial

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