Broker Check

Viewpoint: Did 2023 End the Way You Expected?

| January 17, 2024


After posting double-digit losses in 2022, stocks soared and bonds rebounded in 2023. It was a year that defied expectations by many accounts.  

A number of forecasts predicted that the US economy would enter a recession in 2023 as the Federal Reserve raised interest rates to fight high inflation. But the economy remained resilient, inflation eased, and the Fed declined to lift rates later in the year. US stocks rose in 2023, despite some setbacks along the way. Many economists who called for a recession have since walked back their predictions. This underscored that guessing where markets may be headed is not a reliable way to invest.

That’s not to say a recession won’t happen, but the economy, markets, inflation, employment, housing, etc. all seem to be doing much better than anticipated. The media certainly wants you to consume what they sell, but is it what’s best for you? We like how Morgan Housel describes this perspective in his new book, “Same as Ever.”

“The typical attempt to clear up an uncertain future is to gaze further and squint harder - to forecast with more precision, more data, and more intelligence. Far more effective is to do the opposite: Look backward, and be broad. Rather than attempting to figure out little ways the future might change, study the big things the past has never avoided.”


Here are a few of our timeless tenets that offer timely investment insights for the year ahead.


There’s Never a Good Time to Time the Market

Perhaps most obviously, last year demonstrated how randomly—and rapidly—markets can move. As The Wall Street Journal reported at year-end:

“Almost no one thought 2023 would be a blockbuster year for stocks. They could hardly have been more wrong.” [WSJ What Did Wall Street Get Right About Markets This Year? Not Much, by Gunjan Banerji, Dec. 29, 2023]


Another financial journal observed:

“What was supposed to go up went down, or listed sideways, and what was supposed to go down went up — and up and up. The S&P 500 climbed more than 20% and the Nasdaq 100 soared over 50%, the biggest annual gain since the go-go days of the dot-com boom. … ‘I’ve never seen the consensus as wrong as it was in 2023,’ said Andrew Pease, the chief investment strategist at Russell Investments.” [ALM Think Advisor, Everything Wall Street Got Wrong in 2023, by Alexandra Semenova and others, Dec. 29, 2023]


Many financial pundits offered elaborate explanations for the year’s fortunes, and why (in hindsight) their projections were so far off. While their reasons may be accurate, the implication is, were it not for this, that, or the other thing, their forecasts would have been correct.

The problem is, there’s almost always “this, that, or the other thing” going on in this big, busy world. Thus, it really should come as no surprise that routine surprises regularly randomize the market’s next moves.

We’ve known this for years—since at least 1973, when Burton Malkiel published the first edition of “A Random Walk Down Wall Street.” Even after 50 years, Malkiel’s message represents one of the most timeless truths explaining why we don’t try to time market trends.

 

Beware of Catchy Catchphrases

In 2023, just seven stocks within the S&P 500 Index accounted for almost two-thirds of the index’s total annual gains. Their striking performance scored them the catchy title, “Magnificent Seven.”

What should we expect for this star lineup in the coming year? Search today’s popular press, and you’ll find timely tips galore on whether to bulk up on more magnificence or to sell while the selling is good. Forecasts hinge on the usual suspects: Whether inflation rises or falls, a recession lands or recedes, technologies advance or retreat, and so on.

 

Diversification Is Perennially Prudent

Viewing 2023 up close, there may be a temptation to chase after the market’s recent winning streak, bulking up on more of that which has been so pleasantly surprising of late.

Zooming out, our perspective remains unchanged: We recommend maintaining a globally diversified portfolio, tailored for your needs. Treat an allocation to the Magnificent Seven (and the next trend, and the one after that) as one of many “pistons” powering the market’s perennial growth. But pair it with effective diversification, to temper the inevitable upsets that await us in the year(s) ahead.

In the end, a well-diversified investment portfolio and wise financial planning provide you with a better opportunity to reach your personal goals than chasing trends, acting on a whim or ignoring it all and putting your head in the sand. We are here to help, and we wish you good health, happiness, and harmonious well-being in 2024.