Review: What Could Happen in 2023

Since it is approaching mid-year, it makes sense to look at a few data points from the start of 2023. Back in January, TGIF 2 Minutes took a look at two charts:

  1. How much more expensive growth stocks were (and are) versus value stocks (top chart)
  2. Average US stock returns following big downturns in markets (bottom chart)

Read on for the review from earlier in the year, followed by a June 2023 update.

Review from January 2023: 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 where the market is going. But 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 much less over-priced (read: cheaper) 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.

Mid-year 2023 update: growth stocks have rebounded after getting clobbered – both outright and versus value – in 2022. Advocating for balance over the long term would mean maintaining an “all-weather portfolio” with exposure to both growth and value, with data suggesting a slight tilt to value in the long term.

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 these concepts.

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