The S&P 500 Index closed roughly 27%, or almost 1,000 points, above its panic low on October 12, 2022.1 On that day, it was less than six percent under its all-time high, which we saw on the first trading day of 2022.
Before and after that historic panic low, hundreds of millions of words were written and spoken about the stock market by economists, financial advisers, journalists, strategists, and members of the general public.
Although I could not possibly have heard all of the circulating opinions, I have a good understanding of the general sentiments and I’m sure you do too. The number of credible commentators who forecasted an S&P increase of almost 1,000 points was nearly zero. There has been a lot of that going around over the last few years.
The COVID-19 pandemic. No one predicted that a global health crisis that would result in the deaths of millions of people worldwide would occur. No one predicted that the entire world would be locked down, despite evidence that the virus was primarily lethal to the elderly and ill.
The COVID-19 recession. No one predicted that there would be a 19% peak to trough contraction in the United States economy; indeed, this would have been considered inconceivable.2 And certainly no one predicted that this recession would last only three months.
A 40-year inflation spike. No one predicted that the Fed would respond to the pandemic with a 40% increase in the M2 money supply.3 Although some could have foreseen that such a response would lead to some degree of inflation, no one predicted that there would be inflation rates of 9%.4
Fed tightening. Although it was clear that the Fed would have to tighten with inflation rate as high as 9%, no one predicted that this would result in the fastest interest rate increase in the 110-year history of the Fed.5
The nonexistent recession. Everyone predicted that with the drastic earnings recession and the substantial Fed tightening and the 25% market crash that a broad economic recession in 2023 was inevitable. And yet, so far, everyone has been wrong. No one predicted this!
The stock market round trip. As mentioned at the beginning of this letter, no one predicted that the S&P would rise from 3,600 in October 2022 to nearly 4,600 in July 2023.
That’s correct; the stock market has risen substantially in less than a year. Given the unprecedented chaos of the last three years, this result is no small achievement.
Once again, it is clear that the strategy of acting based on a solid financial plan is better than reacting to current events. If you have questions about how to construct a financial plan that will suit your individual needs and goals, contact our office at (469)212-8072 or gds@gdswealth.com.
1 Information provided by S&P Dow Jones Indices, as of August 2023.
2 Information provided by the Center on Budget and Policy Priorities, as of August 2023.
3 Information provided by Reuters, as of January 2023.
4 Information provided by NBC News, as of August 2023.
5 Information provided by Bloomberg, as of June 2023.
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