Stock Indices:
| Dow Jones | 39,118 |
| S&P 500 | 5,460 |
| Nasdaq | 17,732 |
Bond Sector Yields:
| 2 Yr Treasury | 4.71% |
| 10 Yr Treasury | 4.36% |
| 10 Yr Municipal | 2.86% |
| High Yield | 7.58% |
YTD Market Returns:
| Dow Jones | 3.79% |
| S&P 500 | 14.48% |
| Nasdaq | 18.13% |
| MSCI-EAFE | 3.51% |
| MSCI-Europe | 3.72% |
| MSCI-Pacific | 3.05% |
| MSCI-Emg Mkt | 6.11% |
| US Agg Bond | -0.71% |
| US Corp Bond | -0.49% |
| US Gov’t Bond | -0.68% |
Commodity Prices:
| Gold | 2,336 |
| Silver | 29.43 |
| Oil (WTI) | 81.46 |
Currencies:
| Dollar / Euro | 1.06 |
| Dollar / Pound | 1.26 |
| Yen / Dollar | 160.56 |
| Canadian /Dollar | 0.73 |
The first quarter of 2023 was eventful, not unlike the past 3 years. The economy continues to grapple with high, but falling, inflation and interest rate hikes from the Federal Reserve. The war in Ukraine continues, although much less talked about by major news outlets. And now, the world’s financial system has taken a hit as several large banks failed over the course of a week in March. While it is impossible to know if these failures will have a ripple effect, it doesn’t appear that this will turn into a 2008 like financial crisis. Inflation is still the major data point driving the markets, and the economy is still experiencing far too much of it. The Fed has continued to hike rates at a record pace with little signs of a pause, however, the banking crisis we saw in March could cause them to flinch if earnings and growth come in softer than expected. It is hard to keep your foot on the gas when it looks like a cliff could be on the horizon.
I can appreciate that this all sounds bad, however, there are still bright spots out there. M2 money supply which exploded in 2020 and 2021, which some would argue was the driver of the inflation problem we are experiencing, has been in consistent decline since last year. Banks hold nearly three trillion dollars in reserves, compared to basically zero prior to the 2008 financial crisis. Unemployment and corporate earnings have been incredibly resilient in the face of inflation. Despite the lack of materially good news, the S&P 500, which was down nearly 25% last October, has returned 15% in the last two quarters.
Another bright spot that was majorly overlooked in 2022 was that even though the market fell around 20% on the year, the income produced by S&P 500 dividends increased by around 11%. This is what companies pay out to their investors for simply holding their stock. I consider it a bonus for not panicking out in any given year. For the last decade investors (especially retirees) have been starved for income with cash and bonds yielding next to nothing, but the stock market’s dividend has continued to grow over that same time.
For pre-retirees, accumulating capital for retirement becomes significantly easier when dividends are increasing. These dividends are reinvested for more shares, and in a year like 2022 these reinvested dollars were buying shares at deep discounts. As equity investors, much of our lifetime investment returns occur during bear markets, unfortunately it can take a while to see these returns.
And of course, for retired investors, in a year where we saw peak inflation come in at over 8%, getting an 11% raise on your income likely far outpaced other cost of living increases seen with pensions or Social Security. In fact, the S&P 500 dividend has outpaced inflation by about three times over the last 50 years. So, while the account statement may be painfully down from time to time, the income generated by stocks was up quite nicely, and income is what pays the bill at the grocery store.
Significant and prolonged declines in stock prices are the norm, but they have always been far outpaced by the subsequent advances. Patient investors will continue to be rewarded in the long term, even with rough patches like we have experienced recently.