In my January 2022 Editor’s Note, I expressed my wants for “more good portfolio returns,” “more economic recovery” and “more acts of kindness from one stranger to another.”

We did get more economic recovery in 2022. Since there are many good people throughout the world despite what the headlines may have you perceive, I’m going to claim going two for three on my wish list.

Mr. Market certainly did not grant the first wish; stocks spent 2022 in a bear market. So did real estate investment trusts (REITs). Bond prices fell. Cryptocurrencies were a disaster. Gold—often touted as an inflation fighter—and oil were trading at prices close to where they started 2022 when I wrote this in mid-December. Oh boy.

What was up? Inflation and interest rates.

Last year was a good year for those of you who had been parched by the low yields of the past several years. Six-month Treasury bills were yielding 4.70% in mid-December. (Every longer-dated Treasury, from the one-year note to the 30-year bond, had a lower yield. This is an occurrence known as inversion.) Discover was offering one-year certificates of deposit (CDs) yielding 4.05% to AAII members in mid-December.

Current expectations call for the Federal Reserve to pause its current rate hike cycle during the first half of 2023, according to the CME’s FedWatch Tool. These odds are very much subject to change.

Historical trends do offer some reasons for optimism. The third year of a presidential term tends to be good for the stock market. Back-to-back calendar-year declines in the equity markets are infrequent. Data from the Ibbotson “Stocks, Bonds, Bills, and Inflation” (SBBI) yearbook shows that large-company stocks have experienced negative total returns on consecutive years just four times since 1926. Those periods were 1929–1932, 1939–1941, 1973–1974 and 2000–2002. Small-company stocks were negative on consecutive years just five times: 1929–1932, 1940–1941, 1969–1970, 1973–1974 and 2007–2008.

Dark clouds still exist. The inverted yield curve is a harbinger of recessions. S&P 500 index earnings growth estimates for 2023 were cut approximately in half over the second half of 2022. Inflation remains very high.

Yogi Berra’s quote about how tough it is to make predictions, especially about the future, holds true today. What we do know is that the long-term odds for investors remain favorable. As long as U.S. corporations remain growth engines, so should U.S. stocks. And the long-term returns from U.S. stocks have continued and should be expected to continue to grow long-term wealth.

There are steps you can take now following last year’s turbulence in the financial markets. One big one is to determine whether the decline in your portfolio’s value is within the expected range of volatility. If it is, then don’t abandon your allocation. What is a normal range? An all-stock portfolio can drop 37% in a single year. A conservative allocation of 40% stocks and 60% bonds can lose 12% in a calendar year.

Savers (aka those in the accumulation phase) can further help themselves by boosting how much they save. Bear markets are an accumulator’s best friend. Your future self will thank you if you look under the couch cushions to find more money to add to your investment accounts.

Retirees can reduce the size of their withdrawals or at least cap how much they increase this year’s withdrawals. Tapping cash savings and other so-called safe assets can also help by allowing you to avoid selling stocks when they are down. (Those of you who follow the AAII Level3 withdrawal strategy should switch to defensive mode, as we explain in this month’s Illustrating Trends Dispatch.)

I give more suggestions about how to put your portfolio back on track following last year’s bear market. If you read the article on AAII.com and find the suggestions helpful, you can click on the “Save” icon and add it to “My Library” to make it easier to find during the next bear market.

Speaking of the bear market, 42 of AAII’s stock screens fared better than the S&P 500 last year. Twelve screens bucked the stock market’s decline altogether and posted gains. Matt Markowski discusses the biggest winners and the screens that (ahem) didn’t fare so well in our annual Stock Screens review. Our 60 stock screens are a long-standing benefit available to all AAII members.

We’ve got other great articles in this month’s issue too: an interview with CNBC’s Bob Pisani, John Deysher on portfolio risk and the latest changes to the Model Shadow Stock Portfolio.

Wishing you a happy, healthy and prosperous 2023,