During bear markets investment marketers resort to the same messaging: think long-term, volatility is normal, invest now or regret it later…etc.
Regardless of the state of the market, investment marketers always have reasons investors should buy now. After all, it’s their job to sell product.
Today is no different.
2022 was a down year for stocks. I am already seeing investment managers argue that it is rare for stocks to be down two calendar years in a row (see chart below). While true, this is misleading.
I remember when people said the exact same thing in 2001 and 2002 as the market declined for three calendar years in a row. Experience shows that while rare, it does happen.
First of all, statistics doesn’t supplant logic. The market does not know that it is up or down at any given moment and statistical history doesn’t drive the market one way or the other.
Rather, performance history is a reflection of the many other factors that ultimately move markets – valuations, flows, sentiment. The fact that it is rare for markets to be down two calendar years in a row likely illustrates the fact that valuations are usually quick to adjust to a more desireable level.
Moreover, a calendar year is an arbitrary period of time and has little bearing on real portfolio experiences. Indeed, the market has had many two-year periods of negative returns. It’s just that these periods (as shown in the second chart below, which shows 2 year returns on a rolling monthly basis) don’t necessarily line up to the Gregorian calendar.
Determining whether 2023 will be an up or down year for the stock market has much more to do with valuations and earnings than 2022 performance.
