By Debra Taylor, CPA/PFS, JD, CDFA™
Although we would like to forget, the S&P 500 and Index posted a double-digit decline in 2022; and history shows that is an important fact when considering how the Index may do in 2023.
First, the S&P Index has only been down on a total return basis in a quarter (27%) of the years since 1928. During those 25 down years, the S&P lost an average of 13.3% on a total return basis.
Another key point is that the S&P has only had a negative total annual return for two straight years, eight times since 1928. These years occurred during the Great Depression, WWII, the 1973-1974 oil crisis and recession, and the bursting of the dot com bubble (2000 – 2002).
One last key point to keep in mind is that the S&P has only ended in the red for 3 straight years 3 times. They occurred during the Great Depression, at the start of WWII, and in the aftermath of the dot com bubble.
As for what turns US equities around after a hard year, the essential ingredients are: help from the Federal Reserve in the form of stable or lower interest rates or Federal government spending. The Financial Crisis is a useful example to show that when times get truly difficult, fiscal and monetary policy stimulus can help the S&P rebound after a horrible year (S&P was down 36.6% in 2008, but up 25.9% in 2009). That’s why US equities are so volatile just now, as no one knows when the Fed will pivot to being more accommodative. Chair Powell is solely focused on bringing down inflation to the Fed’s 2% target and he has the latitude to do so given the strength of the US labor market. Once the market sees softer employment and wage data, we may see the long-awaited market rebound.
As always, please reach out with any questions.