2022 has been an unusual year for the stock market

This article was originally published TKer.co

The S&P 500 closed Friday at 3,839.50, down 19.4% for the year. This makes 2022 the worst year for the S&P since 2008 and the fourth worst year for the index since 1957.ยน

(Source: Yahoo Finance)

Perhaps in the case of the stock market usually rises, 2022 did not mention it always stand up. This is only part of the deal when it comes to successful long-term investing. The road to stock market riches comes with many ups and downs.

According to data compiled by Ryan Detrick of the Carson Group, the S&P 500 had a positive year 71% of the time. It’s an incredible record, but it’s not perfect.

(Source: Carson Group)

(Source: Carson Group)

If history is a guide, then the odds favor positive returns in 2023. According to Detrick’s data, the S&P follows a negative year with an 80% positive year, with an average gain of 15%.

Again, the record is not perfect. While it is unusual for the S&P to see two consecutive years of negative returns, it is not unheard of. This happened after 1973 and 2000, and the following year’s returns actually got worse.

(Source: Carson Group)

(Source: Carson Group)

TKer’s best thoughts on the stock market ๐Ÿ“ˆ

  • 10 truths about the stock market ๐Ÿ“ˆThe stock market can be an intimidating place: it’s real money on the line, there’s a lot of information, and people have lost fortunes there very quickly. But it’s also a place where savvy investors have long amassed vast fortunes. The main difference between these two worldviews is related to misconceptions about the stock market that can lead people to make poor investment decisions.

  • Stomach selling is normal in the stock market๐ŸŽข Investors should always be mentally prepared for some big sell-offs in the stock market. That’s part of the deal when you’re investing in an asset class that’s susceptible to a constant stream of good and bad news. Since 1950, the S&P 500 has seen an average maximum annual decline (i.e., the largest sell-off during the year) of 14%.

  • Wall Street’s 2023 forecast for stocks ๐Ÿ”ญ I wouldn’t bet everything on a one-year forecast. Keep in mind that recent stock market performance will not tell you what will happen in the coming months. Knowing where earnings are headed next year won’t necessarily tell you where stocks are headed. While we’re on the subject of prices and earnings, the price/earnings ratio won’t tell you what’s going to happen next year either. However, we know that the stock market usually goes up in most years and the long game is unbeatable. And when you invest in stocks, time is a valuable asset.

  • How stocks performed when the yield curve inverted โš ๏ธ There’s been a lot of talk about the “yield curve inversion” that media outlets play up that this bond market phenomenon could signal a recession. Admittedly, yield curve inversions have a pretty good track record of tracking recessions, and recessions usually come with significant market selloffs. But experts also caution against concluding that inverted yield curves are bulletproof leading indicators.

  • How the stock market has performed around downturns ๐Ÿ“‰๐Ÿ“ˆ Every recession in history has been different. And stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by significant declines in stock prices. Second, the stock market bottomed out and tilted upward long before recessions ended.

  • Time pays off in the stock market โณ Since 1928, the S&P 500 has had a positive total return of more than 89% over all five-year periods. These are pretty good odds. When you extend the period to 20 years, you will see that there has never been a period when the S&P 500 did not have a positive return.

  • 700+ Reasons Why S&P 500 Index Investing Isn’t Too “Passive”๐Ÿ’ก Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has garnered more attention than buying an S&P 500 index fund. However, the S&P 500 – an index of the 500 largest US companies – is more than just one thing. static A set of 500 shares. From January 1995 to April 2022, 728 tickers were added to the S&P 500, and 724 were removed.

  • The main driver of stock prices: Earnings๐Ÿ’ฐ For investors, anything you can learn about a company is only important if it tells you something about earnings. Because long-term movements in a stock can ultimately be explained by the underlying company’s earnings, earnings expectations, and uncertainty about those earnings expectations. The relationship between stock prices and earnings over time has a very close statistical relationship.

  • When the Fed-sponsored market beatings might end ๐Ÿ“ˆ At some point in the future, we will learn that a new bull market has begun in stocks. Before we get there, the Federal Reserve will likely have to take its foot off the neck of the financial markets. If history is a guide, the market will have to go lower for weeks or months before we get that signal from the Fed.

  • What a strong dollar means for stocks ๐Ÿ‘‘ While a strong dollar is great news for Americans vacationing abroad and U.S. companies importing goods from abroad, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

  • Economy โ‰  Stock Exchange ๐Ÿคทโ€โ™‚๏ธ The stock market reflects the economy. And not really. The S&P 500 is mostly about the production and sale of goods. US GDP is mostly related to the provision of services.

  • Stanley Druckenmiller’s #1 tip for novice investors ๐Ÿง โ€ฆyou don’t want to buy them when they’re big, because what do they do when they’re big? They go out and expand their opportunities. After three or four years, there are already opportunities and they are losing money. But when they lose money? Well, then they stopped building potential. So, in three to four years, the capacity will decrease and their profit margins will increase significantly. So you should always imagine the world 18-24 months from now as opposed to now. If you buy it now, you’ll have access to every trend at any time. If you imagine the future, you try to imagine how it might be reflected differently in security prices.

  • Peter Lynch made a rather prescient market observation in 1994 ๐ŸŽฏ Some event will come out of the left field, either the market will go down or the market will go up. Change will happen. These ups and downs in the markets will continue. โ€ฆ Underlying corporate earnings have historically grown about 8% a year. Thus, corporate profits double roughly every nine years. The stock market should double about every nine years… The next 500 points, the next 600 points โ€” I don’t know which way they’re going to go… After that, they’ll double again in eight or nine years. Because profits are growing at 8% a year and stocks are following suit. It’s all there.

  • Warren Buffett’s “Fourth Law of Action” ๐Ÿ“‰ A long time ago, Sir Isaac Newton gave us three laws of motion that were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea foam and later explained: “I can calculate the movements of the stars, but I can’t calculate the madness of men.” Had he not been traumatized by this loss, Sir Isaac might have discovered the Fourth Law of Motion: In general, for investors, returns decrease as volatility increases.

  • ‘Past performance is no guarantee of future results’ charted ๐Ÿ“Š The S&P Dow Jones Indices found that funds that outperformed in a given year rarely continued to outperform in subsequent years. According to their research, 29% of the 791 large-cap stocks outperformed the S&P 500 in 2019. 75% of those funds exceeded the benchmark again in 2020. Consecutive until 2021.

  • One stat shows how difficult it is to pick market-beating stocks ๐ŸŽฒ Stock picking in an attempt to outperform market averages is an incredibly difficult and sometimes money-losing endeavor. In fact, most professional stock pickers fail to do this consistently. One reason for this is that most stocks do not generate above-average returns. According to the S&P Dow Jones Indices, only 22% The value of stocks in the S&P 500 outperformed the index itself from 2000 to 2020. During that period, the S&P 500 rose 322%, while the average stock rose only 63%.

ยน Data via S&P Dow Jones Indices:

Data via S&P Dow Jones Indices.

Data via S&P Dow Jones Indices.

This article was originally published TKer.co

Sam Ro is the founder of TKer.co. Follow him on Twitter @SamRo

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