What can I say about the markets for next year? As you probably know, this year stock markets turned out differently than most of us predicted last December so any predictions are likely to be off! That said, we seem to be gaining more certainty with where inflation is going, and therefore interest rates which should stabilize the stock markets. 

For some commentary about the outlook for next year here are the thoughts of one of AGF’s top global managers, Tony Genua:

A Tale of the Twenties: The Roaring 1920s and the Boomerang 2020s

Historically, investing in stocks after a 20% decline has tended to yield good outcomes for investors.

The first years of the 2020s have seen some tumultuous events, to be sure, but many have a common aspect: they signal a return to previously existing conditions. Indeed, the 2020s remind us of a boomerang, returning some conditions of what we might have thought were in the distant past, but are now influencing the investment landscape.

If we look for precedents, we might turn to the 1920s, an era that also saw a meaningful transition – albeit one that did not end so well. The decade earned its nickname – the Roaring Twenties – by being a time of dramatic change and growth. The stock market boomed, and Western society enjoyed unmatched prosperity and cultural advancement.

This included:

• Real GDP growth averaging 4.2%;

• The Dow Jones Industrial Average rising 600% between 1921 to 1929;
• A material reduction in taxes, with the top U.S. rate dropping from 73% to 24%;
• Car, household appliance and home ownership becoming widespread;
• The beginning of commercial aviation; and
• Credit exploding with margin debt and consumer instalment payments.

There were other breakthroughs, too.

After a difficult start to the decade, farmland productivity and incomes rose sharply. Communications improved with the move from the telegraph to the telephone. Women finally earned the right to vote. The discovery of penicillin improved life expectancy. Pre-sliced breads became available, the TV was invented and radio vastly improved with the introduction of the first commercial station, which in turn helped usher in the Jazz Age. And before the dawn of memes, flagpole-sitting became a thing.

As a whole, the 1920s made for a rip-roaring decade – until, of course, its excesses ultimately resulted in the stock market crash of 1929.

A hundred years later, we are seeing trends that suggest we are boomeranging back to the future. Inflation has returned, reaching its highest levels in 40 years, and interest rates have been rising rapidly in response. Debt as a percentage of GDP has climbed, and energy prices have rebounded. On the geopolitical front, with conflict abroad and escalating tensions, the world is increasingly deglobalizing, reversing the trends of the past several decades. All of this has caused stock market volatility to rebound, with the highest levels of trading days +/- 1% since the Global Financial Crisis.

U.S. S&P 500 Total Returns (1937-2022)