What 2023 Teaches Us About Expectations vs. Reality

Realized market returns are driven by the difference between investor expectations and the events that actually transpire. If reality pans out better than expected, markets may deliver strong returns along the way. On the other hand, market returns may be disappointing if developments are worse than anticipated.

The global MSCI All Country World IMI Index returned 21.6% in 2023. That’s three times its annualized compound return since June 1994. Such an outsized return suggests investors’ expectations for 2023 were exceeded. Think about that for a moment: We’ve had major geopolitical conficts, a US banking crisis, deteriorating fscal health for many countries, and yet, on balance, outcomes were better than what markets expected at the start of the year.

This is something to keep in mind when reading forecasts for 2024. If predictions (good, bad, or indifferent) come to fruition, stocks should have a positive expected return. 

Click here to continue reading.

Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.