As we all settle into 2024, I am delighted to let you know that the behavior of the equity markets over the past two years can be succinctly summarized in two sentences. The Russell 2000, S&P 500, and Nasdaq 100 all experienced declines of peak-to-trough in the 19.4-33.1% range.1 At the end of 2023, all three reached new record highs on a total return basis, including dividends.
Why the stocks performed this way, however, is far less important than the lessons that can be learned from this summary. While there are countless market commentators who offer their opinions on the why, I am happily not one of them. Indeed, to my knowledge, most of those commentators did not accurately predict the market performance of 2022 and 2023.
The sheer fact that these events occurred should be of greater significance to investors. Specifically, the market events of 2022 and 2023 show us that there can be a very significant bear market one year and a raging bull market the next. Although these events may not always occur in as rapid a succession as these past two years, in the broadest sense, this is how the stock market works.
In light of this, I have generated a list of a few enduring principles to consider when you think about the stock market.
1. It is impossible to consistently predict the market. Thus, it is my opinion that the best method to earn the highest long-term return is to remain invested at all times.
2. Rather than following stock market trends, I believe it is better to consider investors as the long-term owners of businesses.
3. Although there have been frequent, and occasionally significant, declines in the market, these have always been overcome.
4. I believe that to invest successfully in the long term, investors must create a plan that fits their individual needs, and they must consistently put this plan into practice.
5. I have found that investment plans created in a panic response to market trends most often fail.
There are also several global issues to consider, all of which impact the market to varying degrees.
The impacts of the COVID-19 pandemic are still being felt in both society and the economy. These impacts are occurring in ways that can’t be predicted, much less interpreted into coherent investment policies.
The most significant financial impact of COVID-19 thus far was the 40% explosion in the M2 money supply by the Federal Reserve.2 This, naturally, resulted in a spike in inflation. To mitigate the inflation, the Fed implemented a sharp, fast interest rate increase. This led to debt and equity markets cratering. But despite this, economic activity everywhere but the housing sector has remained strong. Employment rates also remain largely the same.
Inflation has decreased but has not yet reached the Fed’s target of 2%.3 Middle-class budgets remain strained as prices for goods and services remain elevated. And yet, capital markets are recovering. A recession may begin, but that is still to be seen.
All of this to say, there are many national uncertainties that remain. There is a serial debt ceiling crisis, Medicare and Social Security appear to be on the path to insolvency unless reform occurs, and 2024 is an election year.
My advice to you remains the same as it was years ago and the same as it will be years from now. Stay in touch with your financial adviser. If your long-term goals and financial plan have changed, let’s figure out a way to help you get back on track. If they haven’t, I will recommend staying with your current plan; if your plans haven’t changed, it is unlikely there’s a compelling need to alter your portfolio.
It is truly an honor and a privilege to serve as your financial adviser. If you ever have any questions about your financial plan or about any of the ongoing market events, please feel free to contact our office at (469)212-8072 or email@example.com. We would be happy to assist you.
 Nasdaq, 2022
 Reuters, 2023
 AP News, 2024
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