Market Update
(all values as of 10.31.2023)

Stock Indices:

Dow Jones 33,052
S&P 500 4,193
Nasdaq 12,851

Bond Sector Yields:

2 Yr Treasury 5.07%
10 Yr Treasury 4.88%
10 Yr Municipal 3.64%
High Yield 9.38%

YTD Market Returns:

Dow Jones -0.28%
S&P 500 9.23%
Nasdaq 22.78%
MSCI-Europe 1.38%
MSCI-Pacific -1.75%
MSCI-Emg Mkt -4.31%
US Agg Bond -1.82%
US Corp Bond -0.91%
US Gov’t Bond -1.43%

Commodity Prices:

Gold 1,992
Silver 22.96
Oil (WTI) 81.36


Dollar / Euro 1.05
Dollar / Pound 1.21
Yen / Dollar 149.40
Canadian /Dollar 0.72

Closing out 2021 marked one of the most significant anniversaries in U.S. economic and financial history. On the night of Thursday, December 5, 1996, perhaps the most iconic Federal Reserve chairmen ever, Alan Greenspan, gave his famous “irrational exuberance” speech. Greenspan, often thought of as an authority when it came to his opinions on finance and the markets, would go on to say:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy?”

With this speech, Mr. Greenspan asked two obviously rhetorical questions: “How do we know when things are significantly overvalued and how do we prepare and control it with monetary policy?” Two questions that neither him nor anyone else in the world could provide an answer for, however, it was clear in his words that his view on the question of “overvaluation” was that the financial markets were either already there or very soon would be.

The markets took immediate note of these comments and Mr. Greenspan’s sentiment. Overseas markets sank nearly 3% throughout the night followed by a drop in the U.S. stock market that next Friday.

Thursday, December 5, 1996, the S&P 500 closed at a value of 744 while having no knowledge of what Alan Greenspan would say later that night. As you would have it, Mr. Greenspan’s prediction was right. The S&P 500 had finally reached a top─ on March 24, 2000 at a value of 1,527. Yes, over three years after Greenspan’s speech and nearly double its 1996 price, the market had peaked and the economy entered the dot-com bubble recession of the early 2000s.

The obvious takeaway here is not that Alan Greenspan was unable to time the stock market, despite having possibly more resources and insight into the financial landscape and economy than anyone else in America at the time. The obvious takeaway is that no oneno economist, banker, hedge fund manager, market analyst or media talking head can accurately predict the market’s next move, much less tell you when to get out and back in with any consistency.

The S&P 500 closed at 4766 to end 2021, up more than six times since Greenspan’s speech. Including dividends, $10,000 invested in the market in December of 1996 would equate to something like $100,000 today. Not to mention, the income produced by the index’s dividends is up around 4 times over that same period.

These returns transpired despite enduring two of the most significant recessions in history in 2000 and 2008, numerous changes in political power, government shutdowns, Ebola, Brexit and of course the fastest 30% market drop on record in 2020 during the early stages of Covid.  The market experienced countless 5,10 and 20% corrections over the last 25 years, but investors who have stayed the course and ignored the day-to-day headlines have been rewarded handsomely.



2021 In Review

While 2021 was a challenging year in many ways, it was another great year for investors. The S&P 500 hit 70 record highs, finished up over 28% for the year and experienced very little volatility despite concerns about the change in the White House, new strains of Covid and high relative stock market valuations. Entering 2022, the economy and financial markets are still being impacted by Covid-19, however, these impacts continue to fade. Most Americans now have some immunity to the virus, either through vaccination or infection and while case counts are high, deaths and severe illness are not. The government appears less eager to implement more draconian shut down measures to combat the spread of Covid-19 and have more or less adopted the viewpoint that the virus is probably not going away, but the severity of the illness is weakening.

The fiscal measures taken by the government over the last 20 months have allowed the U.S. economy to a near full recovery. Unemployment has fallen sharply and we have experienced extremely strong growth in corporate profits. However, this strength combined with supply shortages across almost all major sectors of the economy has resulted in some of the harshest inflation numbers we have seen in many decades. Additionally, the global semiconductor shortage that began in 2020 has caused prices to jump for a wide range of products, most notably automobiles. Higher costs have bled into air fares, restaurants and rents as these hard-hit industries continue to struggle with the pandemic.

The Federal Reserve has responded to these price increases by slowing its bond purchases and laying out the groundwork to begin to normalize interest rates. Much like the last decade, trying to predict how often and by how much the Fed will raise interest rates is a futile task, but we do know that it is inevitable as the economy makes its recovery.

2022 Outlook

As we enter the new year, we are likely approaching the middle of the economic cycle. This stage is usually supportive of stock prices, however, it should be expected that momentum will slow and volatility will increase as government support fades.  LPL Financials’ investment committee continues to favor stocks over bonds as the prospects for higher interest rates and inflation will make it challenging to capture real return in fixed income investments. LPL also prefers U.S. stocks compared to international and emerging markets due to the ongoing regulatory risks in China. Bonds struggled in 2021 and will likely continue to experience weakness going forward. The real return of bonds will largely be dependent on how long high inflation stays around and how quickly rates rise. Either way, return expectations for traditional fixed income should be low. Municipal bonds stood out for fixed income in 2021 as many cities and states received significant federal support during the pandemic. Default rates for municipal bonds remain at historic lows and the prospects for higher taxes sometime over the next few years may continue to provide support for tax free bonds.

At the close of each year, LPL Financial and many other investment firms release their market forecasts for the following year. I have always had the opinion that year to year predictions are rather meaningless to long term, goal-oriented investors. Additionally, it is quite rare when firms release a negative annual return forecast (even if we know it happens roughly one out of four years).  All the same, it is a question we are often asked so I have outlined ten Wall Street firms’ opinions on what the year ahead may bring.

Investment Firm 2022 S&P 500 Price Forecast 2022 S&P 500 Return Forecast
Bank of America Merrill Lynch 4,600 -3.5%
Citi 4,900 2.8%
First Trust Portfolios 5,250 10.2%
Goldman Sachs 5,100 7.0%
JPMorgan 5,050 6.0%
LPL Financial 5,100 7.0%
Morgan Stanley 4,400 -7.7%
Oppenheimer 5,330 11.8%
State Street 5,100 7.0%
UBS 4,850 1.8%
Median Forecast 5,075 6.5%

Forecasts always vary widely from firm to firm, but the median expectation is mid to high single digit returns for the coming year. Morgan Stanley and Merrill Lynch are two outliers, predicting negative returns for the year, although, it is worth noting that each of their 2021 forecasts were low single digit returns, missing the mark by a significant margin.

Probably more critical for investors are stock market return expectations looking forward over the next decade. Since March 2009, the bottom of the financial crisis, the market has returned over 17% annualized and has only experienced one negative year in 2018. These return metrics probably can’t continue indefinitely. At some point stock market returns should be expected to move toward their long-term average of around 10%, of which the timing and trajectory will be unpredictable.

As we enter a mid to late market cycle environment, there will be daily predictions on when our next significant market correction or economic recession will begin. Perhaps one of the most fitting quotes to keep in mind when pondering this is one by investing legend Peter Lynch of Fidelity:

“Far more money has been lost by people preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves. A market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.”

We wish you a happy and healthy New Year.












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Important Disclosures

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. 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. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.