A Brief Commentary on the S&P in 2022

I rarely editorialize on this blog but there’s been something going on in the market the last six months that I finally do have to comment on.  With Friday having been the final trading day for 2022, we learned the dire news that the market had seen its biggest declines in 2022 since the financial crisis of 2008.  The S&P is down 19.4% for the year, 33.1% for the Nasdaq, the Dow 8.9%.  But I have been following the S&P with particular interest in the last two quarters specifically because of the hullabaloo the financial wizards were making at the end of June.  You may recall the end of June.  The S&P had suffered consecutive losses in the first two quarters.  And do you recall what all the wizards were saying at that time about those losses? 

In the entire 150+ year history of the S&P, there had NEVER been a time when the index had losses in the first two quarters that it did not fully recover by year-end! 

That’s when I started commenting, half serious-half joking, that this would be a very good time to buy the S&P.  How could you lose?  After all … NEVER BEFORE IN HISTORY! 

But that is, after all, what makes the world of investing so fascinating … it is so terribly unpredictable.  And indeed the “never before in history” proved to be untrue for 2022.  Now it became “for the first time in history,” the S&P did not recover. In fact, the index ended the year just a few points above its low mark in June.  Anyone who bought in June would have just barely broken even. 

But it wasn’t entirely doom and gloom.  Indeed, there was a very good July and August and by mid-August the S&P had recovered fully half of its losses from January. This was an awfully good return for just six weeks and no reason to believe it wouldn’t continue. The index would easily fully recover by the end of the year.  Right?

But then came in that nasty unpredictability again and the S&P took another giant nosedive and ended Q3 even lower than Q2.  Wasn’t it just a bit curious that no one was any longer commenting on the prior precedent? But once again, if history is any indicator, does buying at the low in Q3 guarantee year-end profits?  This time the answer was yes. Despite more ups and downs, between 9/26 and 12/30 the S&P rose 7%, or an annualized profit of a whopping 28%. 

Would it have been a bad bet to buy at the low in June?  Not really. At least there would have been no losses.  Even though the S&P came nowhere near breaking even for the year, at least since June there were no losses and that’s a lot more than could be said for the rest of the market.  And there would have been a very handsome profit if purchased at the October low. 

It all comes back to the unpredictability of the market again for were it not for that, we could not make profits because it is what ensures that only the smart money wins. If it could be predicted, everyone would be millionaires, which is just another way of saying that no one would be.

Isn’t that why this is all so much fun?  That is the thought I leave you with for the new year.