It's Hard to Predict the Market, but There Are Some Things We Know

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3 min
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As the team's Capital Markets Analyst, Jacob conducts market and investment research and assists in the development of business strategy to serve our clients more effectively.
January 3, 2023

Stocks closed 2022 down just over 18% lower and bonds closed just over 13% lower. Since 1928 this has only happened 4 other times, usually, as one experiences turmoil the other rises to help balance it out.

Every year some of the largest thought leaders in the industry release their outlooks on the year/years ahead. Yet when you actually look at it they are wrong very frequently, and it’s simply because trying to predict anything 12 months into the future is pretty much impossible.

How they do it is they take today’s financial data and compare it to previous financial data then factor in the long-term average return.

The historic average return on a 60/40 stock-bond mix is around 8% and the market goes up about 3 out of every 4 years, historically. So, in forecasting probabilities, we can come to conclusions such as we are starting lower, therefore, we have a higher chance of having higher than expected returns, or at least average returns.

This is also why calendar year returns actually matter. You wouldn’t think they would. Each day is independent of one another, what’s the difference between December 31st and January 1st, 24 hours? But in markets, people see a new year as an opportunity. You enter the new year with new expectations, and new outlooks.

Dimes flip as the new year rolls over, even if nothing has materially changed. I am not saying that will happen this year, but it is something that happens.

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