Published Friday, October 21, 2022 at: 5:16 AM EDT | Updated Saturday, October 22, 2022 at: 8:50 AM EDT
Stocks rose sharply Friday and for the week, reaffirming that the market moves in surges - and that it's best not to be caught on the sidelines, trying to guess when it may move. Instead, we choose to remain fully invested, knowing that we have funds in our Short- and Medium-Term Portfolios which enable us to ride out an inevitable market downturn.
After an extended post-Covid run-up in prices, stock values have come down since Russia invaded Ukraine, bringing the price of the Standard & Poor’s 500 back in line with its long-term compound annual growth rate of 7% (not including reinvested dividends).
While stock prices peaked on January 3 of this year, a bear market (down 20%) began on June 13.
According to the latest Wall Street Journal quarterly survey of 60 leading economists, the consensus forecast is for a recession in the first and second quarter of 2023, but the downturn will likely be short and shallow. The consensus forecast is for positive-growth of six-tenths of 1% in the third quarter for the U.S. economy, marking an anticipated turnaround.
Keep in mind that the stock market has historically been a "lead" indicator of changes in the economy, reversing course 6-9 months before the economic data verifies the recovery.
The S&P 500 stock index closed Friday at 3,752.75, gaining +2.4% from Thursday and +4.7% from a week earlier. The index is up +67.73% from the March 23, 2020, bear market low and down -21.76% from the January 3rd all-time high.
For perspective, that's a 27% average annual return since the Covid "crisis" low. If someone had asked you then if you'd take a 27% average annual return over the next 2.5 years (nearly 3x, the historical average), how would you have answered?
Markets move up, markets move down - but, the long-term trend is up and to the right, earning us the equity risk premium of approximately 5% over fixed income and 7% over cash. If you compound those values over time, they are HUGE - and, that is why we invest in equities, despite the "bumpy" ride.
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