Historical Perspective of 2022. The Year of The Great Bond Panic,

[guoshun]

I am working on some initial data for 2022, and I will finalize some numbers later, but I do want to share my initial findings. All data is since 1793. All returns assume total returns. Sources provided at the end.

• 2022 was the 10th worst year for the overall stock market, currently defined as the S&P 500.
• 2022 was the worst bond market ever
• 2022 was the fourth worst year for the traditional 60/40 investor
• 2022 was the 17th time that both the stock and bond markets had negative returns.
• The average stock market return is 8.20% (+/-17.40%)
• The average bond market return is 4.37% (+/-4.20%)
• The average 60/40 return is 6.99% (+/-10.46%)
• The stock market is positive 73% of the time
• The bond market is positive 93% of the time
• The 60/40 portfolio is positive 78% of the time

Have a great year.

References

Baltussen, G., Van Vliet, B. P., & Van Vliet, P. (2021, November 24). The Cross-Section of Stock Returns before 1926 (And Beyond). Retrieved from SSRN.

Damodaran, A. (2022, January). Historical Returns on Stocks, Bonds and Bills: 1928-2021. Retrieved from NYS Stern School of Business: https://pages.stern.nyu.edu/\~adamodar/New\_Home\_Page/datafile/histretSP.html

Goetzmann, W. N., Ibbotson, R. G., & Peng, L. (2001). A new historical database for the NYSE 1825 to 1925: Performance and predictability. Journal of Financial Markets, 1-32.

McQuarrie, E. F. (2020, May 19). Returns on stocks and bonds 1793 to 2019 version 2-0. Santa Clara, California, USA.

Shiller, R. J. (2022, January). U.S. Stock Markets 1871-Present and CAPE Ratio. Retrieved from Home Page of Robert J. Shiller: http://www.econ.yale.edu/\~shiller/

Siegel, J. J. (1992). The Equity Premium: Stock and Bond Returns Since 1802. Financial Analysts Journal, 28-38.

 

[ecclesiasticus]

@guoshun As obvious as it seemed that the stock market was doomed when rates started going up, the bond market was even more obviously doomed because rates were basically at zero. They were either going to sit there at zero indefinitely or go up. I started shorting the 10 year treasury as soon as they started going up, calling it my "bond allocation". It went well. EDIT: Great summary btw -- thanks!

 

[mdhope]

@ecclesiasticus Bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.

• Warren Buffett, Berkshire Hathaway 2020 Annual Report

 

[ecclesiasticus]

@mdhope Great quote!

 

[guoshun]

@ecclesiasticus I think the violent reaction of the bond market is what caught many by surprise.

 

[ecclesiasticus]

@guoshun For sure! But wasn't that the fastest set of rate increases ever also?