It was a great year for the stock market and for the vast majority of investors in workplace retirement accounts.
But let’s not get carried away.
Even after the 2023 gains, most stock investors are only barely above water since the start of 2022. It looks better when you include dividends. Then, the S&P 500 returned 3.42 percent over the course of the two calendar years. Even so, the paltry stock market increases haven’t kept up with inflation.
If you can stand the pain, recall the simultaneous declines in the stock and bond markets that made 2022 a terrible year for investors. It was arguably even worse than 2008, when the stock market collapsed during the great financial crisis. In 2022, bonds declined sharply in value as interest rates rose, while during the financial crisis, investment-grade bonds rallied as interest rates declined.
Lately, the markets have been much kinder to investors, with both stocks and bonds holding their own.
The good returns for 2023 are thanks in no small part to the brilliant performance of the last three months of the year — fueled by growing expectations that the U.S. economy will avoid a recession, and that the Federal Reserve will soon begin to cut short-term interest rates.
