August 2023 Market Update

From Recession Fears to Broadening Market Rally

Over the past few months, fears of a recession in the second half of the year appear to be abating and we have seen stocks respond accordingly. The start of the year rally was limited to a few mega-cap U.S. stocks primarily in the technology sector but recently the rally has been much more widespread. The broadening of the rally is more consistent with the typical historical pattern at the beginning of sustained bull markets. While prognosticators and investors may have switched from pure pessimism, confidently predicting the U.S. would enter a recession this fall, to declaring the next bull market is here, we believe they could be overly optimistic about the future just like they were overly pessimistic early this year.

While we think one should refrain from being overly optimistic, two things are very clear. First, historically, on average the stock market has gone up each day. That tells us nothing about what will happen tomorrow or the next day, but supports our approach of staying invested regardless of the prediction of the moment. Second, using predictions of the future to try to deliver higher returns compared to remaining invested through ups and downs has not been shown to be a winning strategy.

The past few years have felt very tumultuous with COVID, inflation, war, tensions with China, and debt ceiling and recession fears. However, you might be surprised to learn that the average yearly return from January 1, 2020 through July 31, 2023 of the global stock market was 8%. There were plenty of moments during that time where it was much lower and also times when it was higher, but if you tune out the noise even in a challenging 3.5-year period, investors have been rewarded with solid overall returns.

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.