Following on an exceptionally rough and rare return set for stocks and bonds in 2022 – the S&P 500 was off 18% and the Bloomberg US Aggregate was off 13% last year – our first Weekly Wire of the year pondered the likelihood of a repeat performance for the major asset classes in 2023 (the title of that first Weekly Wire was simply What Are The Odds?). To put a finer point on how rough and rare 2022 was from a return set perspective, consider it was just the fifth year in 93 where stocks and bonds both declined for the full year (see chart - the circles mark those years). And when one considers that the year following the prior four years when stocks and bonds both traded lower saw stocks produce an average return of 7.8% and bonds produce an average return of 11.6%, our cautiously optimistic outlook for the major asset classes coming into this year likely makes more sense.

But it wasn’t just market history and the turning of the calendar that had us thinking investors were in for a better 2023 relative to 2022 – it was the belief that the US Federal Reserve was closer than not to being done on the rate hiking front; that bond yields had likely peaked and that the dour investor sentiment and valuation reset we experienced in late 2022 had made the risk/return profile of US equities much more attractive.

As we get ready to say goodbye to Q1 2023, we continue to think – despite some recent disappointing inflation data; hawkish rhetoric from the Fed, and the travails of the US (and now European) banking sector that stocks will still be biased higher this year, and bond yields will still be biased lower (which should translate into higher bond prices). And at the risk of jinxing it, as of March 17th, the S&P 500 is up 2.0% year to date and the Bloomberg US Aggregate is up 2.5% year to date.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 819-OPS-3/20/2023