The S&P 500 index climbed over 16% the first half of 2023 in a dramatic reversal from its sell-off in 2022. The index is now just a few percentage points below its January 3, 2022 record high of 4796.56. In reality, a handful of stocks that Wall Street has dubbed the “Magnificent Seven” have generated roughly 73% of those gains and driven the index to bull market levels. Investors are familiar with these seven names and include: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG/L), Amazon (AMZN), Nvidia (NVDA), Tesla (TSLA), Meta Platforms (META). This group has produced returns ranging from 36% to 190% in the first half of the year, built on optimism surrounding artificial intelligence and short-term price targets.
However, when viewing the equal-weighted version of the S&P 500, performance becomes rather muted with returns just over 7% for the first half of 2023. Given the stretched, concentrated valuations of the above-mentioned tech darlings, some doubt remains over the index’s ability to climb further. In short, the overall market may have room to run as the S&P 500 laggards have created opportunities for longer-term success.
Recoveries have been much longer and stronger than downturns, with the average bear market lasting 12 months dating back to 1950. The average bull market has been more than five times longer. Investors willing to see past the noise and scary headlines are better positioned to reap the benefits of a recovery, which has averaged a 265% total return according to Capital Group.
Additionally, after large declines in the S&5P 500 such as the 18% drop in 2022, markets often recover relatively quickly in the first year after the low, averaging a 70% return. The S&P 500 was also higher in the following five-year period and averaged a 23% return, rewarding the patient investor who sought to stay invested and avoid the urge to jump ship during bouts of volatility.
The key method to enjoying these returns is to remain invested. It’s time, not timing, that matters, and taking your money out of the market on the way down means you may not capture the full benefit on the way up. Below is a hypothetical example of how missing the “best” days of the market can significantly reduce returns.
Sources: RIMES, Standard & Poor’s. As of 6/30/23. Values in USD. Past results are not predictive of results in future periods.
While today's economic and geopolitical challenges may seem unprecedented, a look at history shows that there have always been reasons to be pessimistic about the stock market. However, the market has always trended higher over the long term. In fact, some of the best investment opportunities have come when investors were most pessimistic.
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The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.