My Opinions About Last Year’s Stock Market Performance

Since the beginning of the year, I posted 16 charts and an analysis of Barron’s 84 stock picks. Obviously, I find this interesting or would not write about it. I get one sense of the market from preparing the charts and another sense when I review them. Both get meshed together when I need to advise a client or make my own decisions.

Last year was a bad year for the stock market and the economy, with inflation and interest rates spiking up and the threat of a recession. World affairs also caused consternation with the war in Ukraine and a nastier political climate with a lack of potential for compromise in either situation. Anyone paying attention would become unnerved and question what they were doing.

One thing I found out quite a while ago is that most people are reluctant to change their minds or alter their plans once they make them. In effect, they become entrenched in what they did. The news, whether good or bad, doesn’t move them to consider changes. It might upset or make them nervous, but not enough to make changes. On some level, this is good if the plans were well thought out and vetted before executing them and were not spur of the moment based on whatever was happening. Planning should be for the long term to achieve specific goals or attain strong financial security. In those cases, current economic and political activities should not cause abandoning your plans unless there is an underlying change in your circumstances or the fundamental assumptions you made.

Having a mindset to stick to what you put in motion is not good if it closes your mind to changes under any condition. Investing and planning for your financial security is a grave undertaking and requires continually reviewing what is happening against what you planned. I am not suggesting precipitous changes but a consideration of whether the path you set is still the way to proceed. This sounds contradictory, and perhaps it is, but making the right investing decisions is hard with many moving parts and things to constantly consider– and the responsibility very great. If your investing is partnering with your spouse or on behalf of children, grandchildren or others, you need to consider their needs and what effect a failure on your part would have on them. If you have an advisor, you should include them in all discussions and decision-making.

The specifics of last year’s stock market are that the market as a whole was down, but not everything in it was down, and not everything was down the same. The Dow Jones Industrial Average was down about 9%, while the NASDAQ was down about 33%. Further, some sectors were up, such as Energy which was up 75%, and Consumer Staples, up about 13%. A lesson here is that deciding what to invest in needs consideration and also needs some diversification. Being overloaded in one sector or type of stocks might work once in a while, but not necessarily on a long-term sustained basis.

Further, trying to beat the market is not easy, and when the investing climate is negative, most choices will be negative (although not to the same degree), albeit there are some exceptions. The stock market indicates how people think as a group, with losses signaling feelings of pessimism, but it is also a lagging indicator. In terms of actual numbers, the 2022 S&P 500 earnings were down from 2021 but still significantly greater than any other year ever. This certainly would indicate that the underlying strength of those 500 super large companies is good. Likewise, the 2022 dividend payments were higher than any other year except 2019 and fell short of that record payout by 55¢ out of $67.00. Further, the percentage of earnings paid as dividends was about 36%, indicating some room for this to grow. All of this is good information, except it doesn’t tell what this year will bring and whether a downward trend is developing. But the fundamentals, for now, appear good.

Fighting this is inflation and the efforts of the Federal Reserve to reduce inflation by causing a recession. Over the long run, some inflation is probably good for the stock market since it would push prices higher, while a recession could never be good. Quixotically the employment rate is at an all-time high, while recessions happen when unemployment starts to grow. Also, all statistical measures are historic, with none in real-time, making understanding what is happening more difficult. However, there are two real-time measures that are pretty personal and make it easy to figure out what is happening. They are how much higher a bag of groceries costs and how many people you know are being laid off. Right now, the groceries keep going up, but the layoffs aren’t there. That indicates inflation but not any sort of recession on the horizon. Trying to figure all of this out is not too easy.

The S&P 500 sector performance is certainly erratic over a one and three-year period but pretty stable over ten years. Note that there are always some outliers, but on balance, everything tends to revert to the mean over a 10-year period. This is not a scientific analysis, but my opinion and some of this is borne out in the charts I posted earlier this year. However, check this out for yourself. Pick any stock or group of stocks and compare them to the 10-year performance of the index that tracks those segments. Also, keep in mind that unless you are lucky enough to put all your money in the one segment that outperforms all others, whatever you do will end up not doing much differently than the 10-year performance.

I explained how timing and the vagaries of the choices affected performance when I wrote about the results of Barron’s recommendations in my Jan 25, 2023 blog.

I could write on and on, but I believe the above presents a realistic picture of how to evaluate stocks as an investment. Consider the above and work at securing your financial future and attaining your goals, and think long-term.

COMMENT: All opinions here are mine and are intended for educational and instructional purposes and should not be considered as any sort of recommendation for any investments or any investment actions in any manner.