One year after the December 2022 Fed meeting and stock investors are almost back to even

https://www.cnbc.com/2023/12/13/one-year-after-december-2022-fed-meeting-and-stocks-are-almost-back-to-even-.html

On this day last year — Wednesday, December 14, 2022 — the Federal Reserve hiked interest rates by another 50 basis points, indicating its “restrictive policy” would continue for some time.?

Stocks went into a tailspin, as investors grew convinced that the Fed was going to tip the economy into a recession.?The S&P ended last December down almost 6%, and ended all of 2022 down almost 20% (19.4% to be exact).

But one year later, the recession has not materialized and the S&P 500 has recovered almost all its losses: in fact, it’s only 3% below its all-time high.?

2022 was an odd duck?

Last year was an unusual one — unusual because market declines of 20% don’t happen very often.?There have been only 15 annual declines of 20% or more since 1926.?

Big market declines: uncommon

(S&P since 1926)

• Down 20%-30%:? 8
• Down 30%-50%:?? 5
• Down 50-84%:????? 2

Source: Dimensional Funds?

A 20% gain for the S&P this year isn’t unusual?

Fast forward to 2023.?December is only half over, but it’s already a strong month, up 1.7%, above the average December gain of 1.4%, according to the Stock Trader’s Almanac.?

And the S&P 500??After slumping almost 20% last year, it’s up over 20% in 2023 (more if you include a 1.6% dividend).?

Believe it or not, this kind of bounce back is not unusual.?

After big market drops (20% or more), two thirds of the time you were made whole within one year of the bottom.?

We are not far off that mark.?The S&P dropped 25% from the January 2022 closing high of 4,793 to the bottom of 3,577 in October 2022.?

We are 150 points (3%) away from the old historic high.?Pretty close to being made whole.?

One final point: you might think it is remarkable for the S&P to be up 20% in a year, but it’s not.?It happens more than one-third of the time.?

S&P 500 (percentage advance each year)

• 20%+ advance:????? 36% of the time
• 10%–20% advance: 21%
• 0%–10% advance:?? ?15%
• 0%–10% decline:???? ?15%
• 10%+ decline:?????????? ?12%

Source: Dimensional Funds

Look carefully at these numbers:?the S&P 500 goes up 10% or more each year 57% of the time.?It drops 10% or more only 12% of the time.?

This is the magic of staying long the markets.?Three quarters of the time, the S&P 500 goes up from one year to the next.?

The lesson: if you are diversified and stay with the markets long enough, you are a winner.