Markets Can Turn on a Dime

Yes, markets can turn on a dime. I know it’s an investing cliché, but it’s also an accurate description.

What we’ve experienced thus far in 2023 has been a perfect example of this. Markets can swing 180 degrees in the blink of an eye. And to be fair, it really started in the 4th quarter of 2022.

We’ve seen a complete reversal of fortune for some very beaten down asset classes. Last year was terrible for stocks (especially tech stocks) and, well, pretty much the worst ever for bonds. And I think bonds getting hammered was what really shocked most investors. That just doesn’t happen.

Just one month into 2023 and the the returns of stocks and bonds are what you’d expect from a full calendar year. We can debate the reasons for this – easing inflation, Fed softening, economic data, improving consumer sentiment, etc. It’s probably a combination of some or all of this – doesn’t really matter.

Obviously I do not expect this pace to continue. If we extrapolate these monthly returns through year-end the Nasdaq would return something like 200%. That’d be great, but it’s not going to happen.

There will be ups and downs just like any other year, and hopefully we end up with a firmly positive outcome for stocks and bonds.

But even if the markets went sideways (meaning nowhere) for the next eleven months, it would still be a very good year by any measure. That’s why it’s so important not to bail out when things are down and it seems like it’ll never get better. Because, suddenly, it does get better.

For our portfolios to recover, we have to participate in the recovery.

We have a ways to go to gain back what was lost last year, but we will get there. In the meantime, it’s been a nice start.