I think it is fair to say that the terrible conditions that the market experienced in 2022 are unlikely to persist in 2023. Massive interest rate increases, 40-year high inflation, as well as soaring energy prices are likely to settle down. This should hopefully give some tailwinds to the market. As per the chart below, the only place to hide in 2022 was in energy. Even bonds fell more than 10% last year.

 

WHAT TO EXPECT IN 2023

 

The best way to answer that question is look back to the past year that had similar volatility and returns.

 

First let’s look at volatility: the S&P 500 had 63 -1% days in 2022. In the past 50 years there has only been three years with as many -1% down days. In 1974 (67 days), in 2002 (73 days) and in 2008 (75 days). The returns for the following years were +32%, +26% and +23% respectively.

 

Now let’s look at total return. As you can see by the chart below, the average return from the bear market low 1-year later has averaged +30.2%. I am not saying history always repeats itself but it usually looks similar. If it does then history is telling us that 2023 may be a relief year.

 

 

 

I have also included a piece from our CIBC economics team entitled “A look back at 2022 and our thoughts for 2023”.

 

As always please feel free to give us a call at any time.

 

Have a great weekend and happy new year!

 

Milan