Will Markets Be Down Again in 2023?

2022 was a tough year for investors. Will Markets Be Down Again in 2023?

I’m not sure. Sorry, I know that’s not a very satisfying answer.

There will always be plenty of people on tv or the internet claiming to know exactly what is going to happen to markets.

Unfortunately, as I've pointed out before, short-term predictions about the markets are seldom correct.

Instead, we can look to history as a guide for what types of outcomes might be reasonable to expect.

Let’s take the Canadian stock market as an example.

The TSX Composite index was down about 6% in 2022. Will it be down again in 2023? Well, consecutive negative years do happen but they're uncommon. Since 1980, the Canadian market was only down in back-to-back years once (2001-2002).

The long-term historical average annual return on the Toronto stock market is about 10%. However, this doesn’t mean that investors should expect to see calendar-year returns near 10% every year.

Take a look at the chart below which plots the TSX calendar year returns from 1957-2022. You’ll notice that although the average return is roughly 10%, very few calendar years have a return that is close to 10%. Some years are much higher. Others are lower.

In essence, this year the range of potential outcomes is fairly wide. However, over many years, the range of possible outcomes narrows dramatically as can be seen below.

Will Markets Be Down Again in 2023?

I hope not, but I can’t know for sure. What I do know for sure is that investors who’ve had the patience to remain invested over long periods have been rewarded.

Have a question about your portfolio? Want to make sure you’re on the right track? Click here to book a meeting with me.

Your trusted advisor,

-- Alex Purdom