What is in store for 2023? Is the stock market overvalued? In answer to the second question: perhaps yes, perhaps no. When most people ask, “Is the market overvalued or undervalued?” what they really are asking is, “Where is the market going next?”
Of course, no one knows for sure. But a bit of historical data can offer information for comparison. Below (top) is a chart showing how over-priced US growth stocks (yellow-ish line) have been over 100 years and how over-priced US value stocks (greenish-blue line) have been over the same period. It would seem that growth stocks are still over-valued. But look at the period for growth stocks between 1974 (the last time inflation was as high as it is today) and 1998. Can you say that it was obvious in 1992 that growth stocks were overvalued? Probably not.
Fast forward to 2023. What could happen next? See the bottom chart for more data.
The chart below (bottom chart) shows performance scenarios over the past nearly 100 years after the stock market has been down 10% (left), down 20% (middle) or down 30% (right). The disclaimer is that past performance is no guarantee of future results, but nearly 100 years of data broken down into 1-year, 3-year and 5-year chunks shows returns have been positive.
The key is staying invested for 1-year, 3-year, 5-year, 10-year, and longer periods of time – and organizing a portfolio to meet goals and liabilities that match those time frames.
Please ask me more about asset allocation and how to align an overall portfolio or financial picture with a lifestyle, goals, and an appropriate time frame.
Happy New Year 2023. Thank you for reading and TGIF!