2022 has been an unusual year for the stock market

This post was originally posted on TKer.co

The S&P 500 closed Friday at 3,839.50, down 19.4% for the year. This makes 2022 the worst year for the S&P since 2008 and the fourth worst year since the index was launched in 1957.¹

Although it may happen that the stock Exchange usually mounted2022 was a callback it’s not always ascend. That’s only part of the deal when it comes to successful long-term investing. The road to stock market wealth is one of ups and downs.

According to data compiled by Ryan Detrick of the Carson Group, the S&P 500 has had a positive year 71% of the time. It’s an incredible record, but it’s not perfect.

If history is any guide, then the odds are in favor of positive returns in 2023. According to data from Detrick, the S&P follows a negative year with a positive year 80% of the time with an average gain of 15%.

Again, the record is not perfect. While it’s unusual for the S&P to see two consecutive years of negative returns, it’s not unprecedented. It happened after 1973 and 2000, and the returns the following year actually got worse.

TKer’s best insights into the stock market 📈

10 truths about the stock market 📈The stock market can be a daunting place: it’s real money at stake, there’s an overwhelming amount of information, and people have lost fortunes there very quickly. But it is also a place where thoughtful investors have accumulated a lot of wealth for a long time. The main difference between these two perspectives has to do with the misconceptions about the stock market that can cause people to make poor investment decisions.
Stock market sales that make your stomach turn are normal🎢 Investors should always be mentally prepared for big sell-offs in the stock market. That’s part of the deal when investing in an asset class sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has had an average annual maximum decline (i.e. the largest intra-annual sell-off) of 14%.
Wall Street’s 2023 outlook for stocks 🔭 I wouldn’t bet everything on a one-year prediction. Keep in mind that recent stock market performance won’t tell you what’s going to happen in the coming months. Know where profits go next year won’t necessarily tell you where the stocks are going. And as long as we’re talking about price and revenue, the the price-to-earnings ratio won’t tell you what’s to come next year, Either. However, we know that the The stock market typically goes up most yearsand the long game is undefeated. And when you invest in stocks, time is a precious advantage.
How stocks performed when the yield curve inverted ⚠️ There has been a lot of talk about “yield curve inversion”, with the media announcing that this phenomenon in the bond market could signal a recession. Granted, yield curve inversions have a pretty good reputation for being followed by recessions, and recessions are usually accompanied by market sell-offs. But experts also caution against concluding that inverted yield curves are foolproof leading indicators.
How the stock market has performed during recessions 📉📈 Every recession in history was different. And the range of stock performance around them varied widely. There are two things to note. First, recessions have always been accompanied by a significant drop in stock prices. Second, the stock market bottomed and turned higher long before the recessions ended.
In the stock market, time pays ⏳ Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. These are very good odds. When you expand the period to 20 years, you will see that there has never been a period where the S&P 500 did not generate a positive return.
700+ reasons why S&P 500 index investing isn’t very “passive”💡 Passive investing is a concept commonly associated with buying and holding a fund that tracks an index. And no passive investment strategy has garnered more attention than buying an S&P 500 index fund. However, the S&P 500 – an index of 500 of America’s largest companies – is anything but a static lot of 500 shares. From January 1995 to April 2022, 728 tickers were added to the S&P 500, while 724 were removed.
The main driver of stock prices: earnings💰 For investors, anything you can learn about a company only matters if it also tells you something about profits. This is because long-term movements in a stock can ultimately be explained by the earnings of the underlying company, earnings expectations, and uncertainty about those earnings expectations. Over time, the relationship between stock prices and earnings has a very close statistical relationship.
When the Fed-sponsored market jabs might end 📈 At some point in the future, we will learn that a new bull market in stocks has begun. Before we get there, the Federal Reserve will probably have to ease off on the financial markets. If history is any guide, then the market should dip weeks or months before we get that signal from the Fed.
What a strong dollar means for stocks 👑 While a strong dollar can be great news for Americans vacationing abroad and American businesses importing goods from overseas, it’s a headwind for U.S.-based multinationals doing business in non-US markets.
Economy ≠ Stock market 🤷‍♂️ The stock market somehow mirrors the economy. But also, not really. The S&P 500 is more about making and selling commodities. US GDP is more about providing services.
Stanley Druckenmiller’s number. 1 tip for newbie investors 🧐 … you don’t want to buy them when their income is high, because what do they do when their income is high? They go out and increase the capacity. Three or four years later there is overcapacity and they are losing money. And when they lose money? Well, they stopped building their abilities. So three or four years later, capacity will be down and their profit margins will be up. So you still have to imagine the world as it will be 18 to 24 months from now, as opposed to now. If you buy it now, you buy every failure every moment. Whereas if you look to the future, you try to imagine how that might be reflected differently in stock prices.
Peter Lynch made a remarkably prescient observation of the market in 1994 🎯 An event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. The markets will continue to have these ups and downs. …Core corporate profits have grown about 8% a year historically. Thus, corporate profits double approximately every nine years. The stock market should double about every nine years… The next 500 points, the next 600 points — I don’t know which way they will go… They will double again in eight or nine years after that. Because earnings are growing 8% a year, and stocks will follow. That’s all we can say about it.
Warren Buffett’s “Fourth Law of Motion” 📉 Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents did not extend to investing: he lost a bundle in the South Seas bubble, later explaining: “I can calculate the motion of stars, but not the folly of men.” Had he not been traumatized by this loss, Sir Isaac might well have discovered the fourth law of motion: For investors as a whole, returns decline as the move increases.
“Past performance does not guarantee future results,” said 📊 The S&P Dow Jones Indices have found that funds that beat their benchmark in a given year are rarely able to continue to outperform in subsequent years. According to their research, 29% of 791 large-cap equity funds beat the S&P 500 in 2019. Of those funds, 75% beat the benchmark again in 2020. But only 9.1%, or 21 funds, were able to prolong this outperformance. file in 2021.
A statistic shows how hard it is to pick stocks that beat the market 🎲 Picking stocks with the goal of beating market averages is an incredibly difficult and sometimes expensive endeavor. In fact, most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks do not offer above average returns. According to the S&P Dow Jones indices, only 22% of S&P 500 stocks have outperformed the index itself from 2000 to 2020. During this period, the S&P 500 has gained 322%, while the median stock has risen only 63%.