The Big Picture: Observations to Start 2023
While a new year may be a time for change, that change only occurs if people are willing to change. The stock market isn’t likely to change, at least because the calendar flipped to a new year. The current trend in place is likely to continue.
However, there are some key ideas related to investing, especially for those who measure their investment returns. Rather than looking at a calendar year, it may be more helpful to think about rolling 12-month periods.
Another concept that can be important with a changing year is to look at the concept of mean reversion. The market had a down year in 2022. But compared to the jump higher in 2021, that looks a bit like reversion to the mean.
Plus, markets have outperformed their long-term averages in the 2010-2021 period. So it’s possible that future returns could be lower, even if the market still rises most years.
That case could be highlighted with tech stocks, which led the market higher in the last decade. Those stocks saw comparatively worse performance in 2022.
Interestingly, the past few bear markets have seen a bottom occur in March. So those looking for the current pain in stocks to come to an end may only have a few more months if this trend holds.