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2022 Investment Review and 2023 outlook

Executive Summary

2022 was a year that none of us wanted.  The stock and bond see-saw relationship broke down.  Inflation, Russia’s invasion of Ukraine, and the Federal Reserve’s tightening policies all led the headlines with both stocks and bonds ending the year in the red.    Stocks turned in their worst performance since 2008.  First time in history both bonds and stocks ended the year down double digits. 


Recession fears are well known for 2023 but there are many reasons to be positive and expect a rebound sooner than later.  Predictions, even by the best, don’t always come to pass and there is room for surprise to the upside.  Even if we fall into recession, stocks will look to turn during it and not after.  The stock market track record on recovering is a good one, it’s recovered 100% of the time.


We launched our “PHD models” with discretion so we can make adjustments based on technical and fundamental analysis of these factors. 


2022 - a year that none of us wanted. 


Last year stocks turned in their worst performance since 2008.  By comparison, it was also one of the worst calendar years in history (great depression, the 70’s, 2000 tech bubble, and 2008 housing crisis being worse).  Fortunately for investors, these events are not frequent. So, congratulations are in order for surviving if you didn’t hit the panic button. 



But you might be asking the same question we are.  What’s next? 


But before answering what’s next, more on 2022, as it’s important we learn from the experience. 


Much of my career, especially in beginning, I was gut punched and kicked in the shins by the market. In my now more than 25 years of experience, I have seen six bear markets and numerous "corrections and pullbacks".


  • Russian default, currency crisis(es)
  • Tech wreck/the tech bubble
  • Financial/housing crises and Great Recession
  • Interest rate tightening cycles (and cuts and raise again)
  • China slowing scares
  • Economic growth scares
  • Covid crash
  • Inflation
  • Russian war on Ukraine
  • Wars. Rumors of wars.  Good times and bad. 


These are the times when folks can lose significant sums of money, experience setbacks or even worse, never recover.  Stories you hear from friends, and family of "losing it all" or getting “wiped out” were likely born during these times (i.e. like 2000, 2008).  Generally what drives this are speculative stocks and fads, this time around being crypto, SPAC's, stay at home stocks, meme stocks, etc.  Fads.  Many of these will crash and never recover just like fads of the past.  If you are in the wrong place you could be wiped out or at very least take years to recover. 


We strive to stand in the way between clients and what could be their worst investments decisions.  We help our clients stay on track for their financial goals.  At times by saving them from themselves.


Last year we reminded ourselves of what we know to be true and what actually works.  Our strategy, our principles, our non-negotiables.  Staying diversified. Rebalancing.  A strategic approach that doesn’t get caught up in fads or overly risky areas of the market as described above.  Having a financial plan and sticking to it.


The see-saw broke.


For investors, the headline for 2022 should be the stock and bond “see saw” and this see-saw breaking was the big story.


Historically, stocks and bonds generally act like a see saw.  When stocks have gone down typically bonds have gone up and buoyed the overall investment portfolio's value.  These are the basics of diversification.  But there are exceptions.


In 2022, with inflation, the Russia’s war, and the Fed raising interest rates, all effecting the markets, both bonds and stocks ended the calendar year down.  This is rare.  I went back and counted and could only find four such instances in the last 100 years.  The last time being in 1994.  In 1995 stocks were up big. 


I believe that a reversion to the mean is in order, the see saw starts working again and either stocks or bonds should end 2023 on a positive note.  That’s why its important, especially during times of uncertainty, to stay diversified.  Because we simply don’t know what will happen and need to be setup for success for a variety of outcomes.


What did help in 2022 were strategies such as value tilting, managing shorter durations in bonds, favoring high quality over credit risk, tax loss harvesting, and rebalancing at the highs and lows. Coaching/Behavioral - staying disciplined. Having a plan and sticking to it. 


Outlook – What’s next for 2023?


Looking ahead to markets in 2023 I start with the fact that after a down year like 2022 it’s not often we see a 2nd down year.  The bad news is if you do get a 2nd down it tends to be sizable.  A sizable down year could fit into the 2023 recession scenario because bear markets during a recession also tend to be longer and fall further. 


But then what?  What happens after a recession starts?  Well stocks will generally look to bottom during the recession trying to be ahead of the turn.  So you don’t want to be sitting out during a recession while looking to get back in after. Besides usually we don’t know when the recession officially ended until well after the fact when the National Bureau of Economic Research gets together and studies it and sorts it all out.  So waiting for that clarity by definition would put you well behind the recovery curve.   


But a recession is not a foregone conclusion either.  Nobody can predict the economy accurately and consistently and even the best with notables like Greenspan and Bernanke have gotten it wrong in big ways.* If we don’t tip into recession or get a “soft landing” that could setup a surprise rebound for stocks.  And when stocks do rebound you tend to see the biggest gains early and quickly.  So again if you are sitting out you will most likely miss those best days and hurt your long term results. 


Odds do favor a 2023 rebound! Stovall, a strategist with CFRA, points out that following the 21 down years for the index since 1945, the S&P 500 has gained 81% of the time.  And if the see saw starts working then at least stocks or bonds will end the year positive.



Survival Plan

  1. Remember bear markets (downturns in the stock market) are normal and temporary. 


  1. Don’t try to time the market and jump in and out. Rather stay diversified and look to rebalance.


  1. Then wait for the recovery.  Always remember, the stock market's track record is a good one, having recovered 100% of the time so far. 


Contact us if you have any questions or concerns.


Allen Greenspan  in 1996

Ben Bernanke in 2007

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The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment.  The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. Diversification does not guarantee a profit or protect against a loss.