2023 Has Been a Rocky Road So Far

While we are only two months into the year, the market has exhibited heightened volatility. In fact, the S&P 500 has moved more than plus or minus one percent in 46% of the trading days so far this year. This compares to 24% of the days since 1930 that posted a daily return which exceeded plus or minus one percent.

There were many uncertainties when 2023 began. When will the Federal Reserve stop hiking rates? When will the war in Ukraine end? Are analysts estimates for corporate earnings too optimistic? Will the economy slip into a severe or mild recession (or no recession at all)?

We don’t have an answer to all these questions. However, we do take advantage of the market volatility that accompanies this uncertainty. When the price of a stock on our watch list declines beyond a warranted amount, we will buy it. Similarly, if a stock price exceeds what we believe to be its intrinsic value, we will go ahead and sell it (provided you own it – in other words, we will not “short sell” a security).

There are many uncertainties in the news today. However, since stocks began trading in year 1611, there have always been uncertainties. The time to become nervous is when everyone is optimistic.

We believe that 2023 will deliver positive market returns. Since 1946, the market has delivered a positive annual return about 70% of the time. There have only been three instances since 1946 when the S&P 500 declined two years in a row. When the decline is steep, as it was in 2022 (the S&P 500 dropped by 19.4%), the subsequent year historically produces a very strong positive return.