Even if you’ve never seen the movie Terminator, you may recognize that famous catch phrase from Arnold Schwarzenegger in his unmistakable Austrian accent. If markets could speak, they might have said the same thing a year ago, “I’ll Be Back!”. But it would have been a stretch for the average investor to believe it. Both stock and bond markets suffered steep declines in 2022. To envision that several market sectors would reach new highs by year end 2023 would stretch the imagination.
Take the S&P 500, for example. The S&P 500 ended the year 2022 down a punishing 19 percent! Certainly, it’s easy to lose confidence in the market at that point. But by year end 2023, the S&P 500 had gained that back and more! Bond markets also recovered nicely.
We’ve now got close to a century of data on the U.S. stock market (98 years to be exact!) Of those 98 years, S&P 500 returns were negative in 26 of them. That’s roughly one out of every four years. 12 of those years saw declines of more than 10 percent. Six of the 12 years experienced declines of over 20 percent! Despite those setbacks, the long run average return of the S&P 500 is 10 percent, well ahead of the long run rate of inflation of 3 percent.
To summarize, the stock market is a double-edged sword. It can be punishing but it can also be very rewarding! You must stay in your seat to reap the rewards and you must guard against human emotions. When markets go up, we tend to believe the bull will continue to run. History says it won’t. When markets go down, we may become anxious, worrying they won’t rebound. History says they will. Over the last century, the odds of a market rebound after a correction are 100 percent. While some rebounds take longer than others, those are pretty good odds! If Arnold was summing all this up in a single sentence, he’d probably say “They’ll be back”!
