2022 was a tough year for portfolios.  While we made some good choices that reduced impact to portfolios, such as shortening duration in the bond portfolio and reducing exposure to growth-oriented active managers, there was just no escaping losses when virtually every financial market was dropping.  According to the Leuthold Group, 2022 was only the sixth time since 1878 that both stocks and bonds had negative returns.  Macrotrends Data notes 2022 was the 7th worst year for the S&P 500 since 1928.

While we aren’t thrilled with 2022 performance, we aren’t giving up on stocks either.  Equity markets have bad years more often and by a wider margin than we would like.  The S&P 500 has lost money in 19 of the 73 years (26%) since 1950, with an average loss in those years of 13.1%.  Even so, the overall average return has been 9.09 % since 1950.  (Source: https://www.macrotrends.net/2526/sp-500-historical-annual-returns )

Based on analysis by JP Morgan, Vanguard, Northern Trust, BlackRock and Invesco, we anticipate average stock and bond market returns will be notably higher over the next ten years than what we forecasted last year.  Last year we projected 2% for bonds but have increased that to over 4%.  Equity expectations were around 5% and are now over 7%.  These are estimates of the averages over the long run—we still expect a lot of bumps along the way.

While we have no idea what market returns will be in 2023, we anticipate we will be actively trading in bond portfolios until the FED is convinced inflation is within their target range.  We will also take a hard look at international stock allocations in both developed and emerging markets. The outperformance of international developed stocks in 2022 may be a sign of things to come.  Meanwhile, the ripple effect on emerging markets from the shift in US relationships with Russia and China is yet to be understood. Higher interest rates change the landscape for many alternative investments - and may create even greater opportunities in some.

Bottom line, we will continue to look for creative ways to help our clients invest wisely, and within their means and comfort level.

Footnote sources:

Vanguard 2023 Market Outlook: https://investor.vanguard.com/investor-resources-education/news/vanguard-economic-and-market-outlook-for-2023-beating-back-inflation

JPMorgan: https://am.jpmorgan.com/us/en/asset-management/institutional/insights/portfolio-insights/ltcma/

Northern Trust: https://www.capitalmarketassumptions.com/?utm_id=go_cmp-18337096007_adg-149769370068_ad-621781617982_aud-320129996831:kwd-1014316320717_dev-c_ext-_prd-_sig-CjwKCAiAk--dBhABEiwAchIwkUSuXHH3wEo-wfDBmtLkhqNTzG_y6jN7A2jIS7NwvTBEqZf13gNcpRoC1eYQAvD_BwE&utm_source=google&gclid=CjwKCAiAk--dBhABEiwAchIwkUSuXHH3wEo-wfDBmtLkhqNTzG_y6jN7A2jIS7NwvTBEqZf13gNcpRoC1eYQAvD_BwE

BlackRock: https://www.blackrock.com/au/intermediaries/insights/blackrock-capital-markets-assumptions

Invesco: https://www.invesco.com/apac/en/institutional/insights/multi-asset/long-term-capital-market-assumptions.html