This week the S&P 500 closed above 5,000 for the first time. Another milestone as we climb the ‘wall of worry’. Over the past 100+ years the S&P 500 has averaged capital gains of ~8.5% per year plus dividends of ~2.0%. That’s a total return of close to 10.5% (on average). If you compound 10.5% per year over 20 years (i.e., ‘CAGR’) – that’s a 637% increase. But as we know, the pathway is rarely smooth. Some years the market may “add 20%” and others it could give back a similar margin (or worse). And we saw this happen recently. However over the long run – markets will rise more often than they fall.
2023 – The Year in Review
2023 has come to a close… and what a year it was. For many, it will go down as one of the more challenging. For others, they will have banked some very attractive gains. In short, the S&P 500 recovered from its worst year in over a decade – finishing the year 24.2% higher. As for myself, my portfolio returned 19.63%. I made some errors this year (which I will discuss) but also had a couple of wins. Net-net – it was a solid year given the unchartered waters we were navigating.
People Choose What They Want to Hear
Markets continue their ascent after a blistering November. The Dow and S&P 500 each gained ~9% for the month – in what is typically a seasonally strong time of year. From a year-to-date perspective, the Dow is up 8.5%, the S&P 500 is up ~19% and the Nasdaq up over 35%. The anomaly? 493 of the 500 stocks on the S&P 500 are barely positive for the year (i.e., the equal weighted index). So what’s driving the optimism? Simple: the expectation of lower yields and the Fed hitting its terminal rate. This post looks at potential blind spots for the market.
Not Just Equities Trading ‘Per the Script’
A little over 2 months ago – I described the market as “euphoric”. For example, valuations were in excess of 20x forward earnings – despite what we saw in bond markets. Something was horribly wrong. My simple advice was do not add to positions at those levels. The downside risks were just too high. My thesis was whilst stocks could easily rally to ~4500 — any further meaningful upside felt ‘limited’ . Turns out we didn’t go too much higher. Now stocks could easily catch a bid in the 4200 zone – that’s what I expect. However, the risk/reward still doesn’t look that favourable…
For a full list of posts from 2017…