January 2023 Client Question: Our Favorite Charts of 2022
By Andrew Murphy, CFA | Co-Chief Investment Officer & Francesca Lanza | Associate Portfolio Manager
S&P 500 Annual Returns
Since 1928, the stock market produced positive results in 69 calendar years vs. 26 years with negative returns.
The market moved higher in 73% of years with an average return of +20.9% and declined in 27% of years with an average drop of -14.2%.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
Equity Market Declines Are Common
The following chart displays the S&P 500’s annual return vs. the largest intra-year decline from 1980 through 2022.
Over this period, the S&P 500 has generated a total annualized return of +11.5%. Annual returns ranged from -37.0% to +35.5%.
There were plenty of market drops along the way as the average intra-year price decline was -14.4%.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
US Bond Market Annual Returns
The Bloomberg Barclays US Aggregate Bond index (Agg) acts as a proxy for the investment-grade bond market. Since inception of the index in 1976, the bond market has produced a total annualized return of +6.6%.
The bond market increased 89% of years with an average return of +8.1% and declined in 11% of years with an average drop of -4.1%.
The 10-Year Treasury yield is shown in the bottom of the chart. Bond prices move inversely to interest rates and credit spreads.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
Treasury Yield Curve
The following chart displays the current Treasury yield curve in black and the values from one year-ago in grey.
Throughout the year, the 2-Year Treasury yield increased by about 364 basis points as investors began pricing in more Fed rate hikes over the next few years. The 10-Year Treasury yield increased by about 203 basis points as expectations of inflation continued to move higher.
The Treasury yield curve is currently inverted with both the 3-Month (4.34%) and 2-Year (4.43%) higher than the 10-Year (3.87%) yield. In general, the Fed controls shorter term Treasury yields by setting the target federal funds rate while the market controls long term rates as investor demand will vary based on future expectations of inflation and economic growth. An inverted yield curve is a sign of a pessimistic economic outlook and typically signals that investors expect the Fed to cut rates soon. If the Fed does cut rates as investors expect, the 3-Month and 2-Year yields will fall below the 10-Year and the yield curve will be upward sloping again.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
S&P 500 Bear Markets
A bear market is defined as a decline of -20% on a closing basis without a subsequent +20% increase.
Since 1929, the S&P 500 has experienced 13 bear markets (about once every 7 years). During these periods, the S&P 500 took about 17 months to reach the bottom with a median price decline of -34%.
Historically, bear markets have created strong buying opportunities as the S&P was significantly higher 1-, 3-, and 5- years after the trough.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
United States Recessions and S&P Performance
The National Bureau of Economic Research (NBER) Business Cycle Dating Committee is charged with maintaining official records of expansions and recessions in the United States. The NBER defines a recession as a significant decline in economic activity while an expansion is defined as a period where economic activity rises substantially. According to the NBER, since 1929 there have been 15 recessions in the US lasting an average of 13 months each.
We will also point out that recessions can reward long-term investors and create strong near-term buying opportunities. During the last 15 recessions, the S&P 500 declined by an average of -30.0%. However, once the market bottomed, performance was very strong over subsequent 1-YR (+50.1%), 3-YR (+79.0%), and 5-YR (+142.1%) periods.
Source: Bloomberg and National Bureau of Economic Research (NBER). Past performance does not guarantee future results and it is not possible to invest directly into an index.
Not All Investment Income is Taxed the Same
It is important to be mindful that not all income received from your investments is taxed the same.
The chart breaks down the IRS taxation rules for different types of investment income: interest, dividends, and capital gains.
Source: Winthrop Wealth. Past performance does not guarantee future results and it is not possible to invest directly into an index.
Tax-Loss Harvesting
Tax-loss harvesting is an investment strategy implemented by selling a security at a loss and simultaneously purchasing a different security with similar (not identical) exposure without ever leaving the market. The realized loss from the sold the security can be used to offset future taxable gains.
If there are losses in excess of any gains, up to $1,500 for an individual or $3,000 for married filing jointly can be used against ordinary income.
Unused tax losses can be carried forward. Please remember that tax loss harvesting may not be appropriate for all situations and does not assure a profit or protect against a loss.
Source: Winthrop Wealth. Past performance does not guarantee future results and it is not possible to invest directly into an index.
DISCLOSURES
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All indexes mentioned are unmanaged indexes which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
The Bloomberg Barclays US Treasury Bills 1-3 Month Index is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than or equal to 1 month and less than 3 months. The Index includes all publicly issued zero coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and at least 1 month, are rated investment grade, and have $300 million or more of outstanding face value.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Rebalancing a portfolio may cause you to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Winthrop Wealth, a Registered Investment Advisor and separate entity from LPL Financial.
< COMMENTARY
Client Questions | January 04, 2023
January 2023 Client Question: Our Favorite Charts of 2022
By Andrew Murphy, CFA | Co-Chief Investment Officer & Francesca Lanza | Associate Portfolio Manager
S&P 500 Annual Returns
Since 1928, the stock market produced positive results in 69 calendar years vs. 26 years with negative returns.
The market moved higher in 73% of years with an average return of +20.9% and declined in 27% of years with an average drop of -14.2%.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
Equity Market Declines Are Common
The following chart displays the S&P 500’s annual return vs. the largest intra-year decline from 1980 through 2022.
Over this period, the S&P 500 has generated a total annualized return of +11.5%. Annual returns ranged from -37.0% to +35.5%.
There were plenty of market drops along the way as the average intra-year price decline was -14.4%.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
US Bond Market Annual Returns
The Bloomberg Barclays US Aggregate Bond index (Agg) acts as a proxy for the investment-grade bond market. Since inception of the index in 1976, the bond market has produced a total annualized return of +6.6%.
The bond market increased 89% of years with an average return of +8.1% and declined in 11% of years with an average drop of -4.1%.
The 10-Year Treasury yield is shown in the bottom of the chart. Bond prices move inversely to interest rates and credit spreads.
Source: Bloomberg. Past performance does not guarantee future results and it is not possible to invest directly into an index.
Treasury Yield Curve
The following chart displays the current Treasury yield curve in black and the values from one year-ago in grey.
Throughout the year, the 2-Year Treasury yield increased by about 364 basis points as investors began pricing in more Fed rate hikes over the next few years. The 10-Year Treasury yield increased by about 203 basis points as expectations of inflation continued to move higher.
The Treasury yield curve is currently inverted with both the 3-Month (4.34%) and 2-Year (4.43%) higher than the 10-Year (3.87%) yield. In general, the Fed controls shorter term Treasury yields by setting the target federal funds rate while the market controls long term rates as investor demand will vary based on future expectations of inflation and economic growth. An inverted yield curve is a sign of a pessimistic economic outlook and typically signals that investors expect the Fed to cut rates soon. If the Fed does cut rates as investors expect, the 3-Month and 2-Year yields will fall below the 10-Year and the yield curve will be upward sloping again.
S&P 500 Bear Markets
A bear market is defined as a decline of -20% on a closing basis without a subsequent +20% increase.
Since 1929, the S&P 500 has experienced 13 bear markets (about once every 7 years). During these periods, the S&P 500 took about 17 months to reach the bottom with a median price decline of -34%.
Historically, bear markets have created strong buying opportunities as the S&P was significantly higher 1-, 3-, and 5- years after the trough.
United States Recessions and S&P Performance
The National Bureau of Economic Research (NBER) Business Cycle Dating Committee is charged with maintaining official records of expansions and recessions in the United States. The NBER defines a recession as a significant decline in economic activity while an expansion is defined as a period where economic activity rises substantially. According to the NBER, since 1929 there have been 15 recessions in the US lasting an average of 13 months each.
We will also point out that recessions can reward long-term investors and create strong near-term buying opportunities. During the last 15 recessions, the S&P 500 declined by an average of -30.0%. However, once the market bottomed, performance was very strong over subsequent 1-YR (+50.1%), 3-YR (+79.0%), and 5-YR (+142.1%) periods.
Not All Investment Income is Taxed the Same
It is important to be mindful that not all income received from your investments is taxed the same.
The chart breaks down the IRS taxation rules for different types of investment income: interest, dividends, and capital gains.
Tax-Loss Harvesting
Tax-loss harvesting is an investment strategy implemented by selling a security at a loss and simultaneously purchasing a different security with similar (not identical) exposure without ever leaving the market. The realized loss from the sold the security can be used to offset future taxable gains.
If there are losses in excess of any gains, up to $1,500 for an individual or $3,000 for married filing jointly can be used against ordinary income.
Unused tax losses can be carried forward. Please remember that tax loss harvesting may not be appropriate for all situations and does not assure a profit or protect against a loss.
Source: Winthrop Wealth. Past performance does not guarantee future results and it is not possible to invest directly into an index.
DISCLOSURES
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All indexes mentioned are unmanaged indexes which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
The Bloomberg Barclays US Treasury Bills 1-3 Month Index is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than or equal to 1 month and less than 3 months. The Index includes all publicly issued zero coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and at least 1 month, are rated investment grade, and have $300 million or more of outstanding face value.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Rebalancing a portfolio may cause you to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Winthrop Wealth, a Registered Investment Advisor and separate entity from LPL Financial.