You would be hard-pressed to find many positive news stories on the internet today. Part of the reason for this is that positive news doesn’t get the clicks that negative news does. The other half of the reason is that we have in fact been going through a bit of a rough patch economically, politically, and even socially as a country since coming out of the COVID-19 pandemic. I won’t even try to touch on the political and social issues of our day, but I will talk about the economic issues we’ve had and the stock market movements we have seen. Throughout 2022 our country faced high rising prices like we haven’t seen in over 40 years. This inflation put a strain on many families and is continuing to do so today. Not only did inflation make life more expensive, it also darkened our outlook and optimism for future economic growth.
Last year, the stock market as a whole performed extremely poorly. The S&P 500 index had its 7th worst year on record, meaning it was difficult for investors to stomach what they were seeing on their statements. The equity market was not the only asset class that was negatively affected as bonds also suffered a terrible run. While 2022 was far from a banner year, we are now almost half-way through 2023. What improvements have we seen this year and should they be cause for optimism going forward? Instead of the doom and gloom, let’s take a moment to look at a couple reasons for optimism as we head into the second half of 2023!
Rising rates --> lower inflation
Like we have talked about before, the Federal Reserve uses interest rates to fight inflation. By raising the target interest rates we are basically discouraging borrowing and subsequent spending in the hopes that this will cool demand and lower prices. As we have seen in the data from the last few months, this has worked. The year over year inflation rate as of May 2023 was 4.05%. Back in June of last year, inflation peaked at a staggering 9.1%. The Federal Reserve has used this tool as they had intended. While it is unknown how many more rate hikes will occur, much of the worst of it has passed. Despite the Fed’s commitment to raising rates, our GDP growth has not suffered the way one might have forecasted. Outside of 2 negative quarters to start 2022, our nation’s Gross Domestic Product has been growing. Again, what you would expect is for our GDP growth to be flat or negative, but that has not been the case. So not only has inflation been tamed, but our economy did not suffer as much as expected in the process. That is two positives wrapped in one.
Positive Stock Market Performance
As we previously mentioned, last year stunk for the stock market. Any of our readers here that are currently investing, which I assume is most of you, don’t need me to tell you that. Your account statements told you this story time and time again in 2022. While last year was historically bad, it offered the opportunity to buy into the market at very low prices. For novice investors, it was the perfect opportunity to start because prices were low and it also provided opportunity to teach about the price of admission into the stock market which is volatility. You buy in low with the hope and more accurately the expectation of capital appreciation and growth. So, what have we seen so far this year?
The stock market has performed very well to start the year! While it is hard to be worse than last year, the first 6 months of 2023 have been objectively positive even when comparing returns to good market years in the past. To back up that statement with numbers, the S&P 500 is up 12.7% this year while the NASDAQ Index is up roughly 27.4% as of June 26th, 2023. The markets are rebounding and inflation is falling.
To conclude, there are reasons to be cautiously optimistic about the movements of our economy and our stock market. While the divides politically and socially seem to deepen every passing day, one thing we can all certainly agree on is that we want to see positive economic growth and upward stock market movement. I would also venture to guess that this year has been a fairly pleasant surprise to some after the year we had last year. Hopefully this post gave some you some positive things to reflect on so far this year. I am obviously not guaranteeing they continue or predicting the future, I am not allowed nor am I qualified, but positive news is always worth hearing. If you have questions about investing or are contemplating the next move in your retirement planning, reach out to us! We are happy to help!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.