Psalm 100:4 - Enter his gates with thanksgiving, and his courts with praise! Give thanks to him; bless his name! For those who live or have lived in the Midwest, the fall is a beautiful time of the year. High school football, nature gives us some of the most amazing colors you'd ever see in God's creation, and, of course, nationally, we all spend time with family and friends under the correct assumption that we all have so much to be thankful for. As hard as it is to say and even harder to live, as Christians, we should always be thankful, regardless of our circumstances. One of the central figures in the New Testament the Apostle Paul, had so many reasons to be ungrateful and discouraged, yet we constantly see him with his eye on the prize. The real reason to be thankful - your eternal hope in Jesus Christ. With that said, it is our job to help you be outstanding stewards of the assets God has placed with you to manage. Often, when the market doesn't cooperate (see 2022), it can leave us discouraged and feeling like we weren't the stewards we were supposed to be. But alas! God did not ask you to be Peter Lynch. So, as you invest monies, it's going to be bumpy. You're on a roller coaster, and the only people that get hurt are those that jump off the roller coaster in the middle of the ride. As I wrote in an article last year titled Bear Markets Normal, Not Fun, the average bear market peak to trough back to peak takes 330 days on the way down and 1.7 years (603 days) on the way back up. So, we should be thankful that, as history always proves, we are well on our way to that recovery (while some investments have completely recovered already). While it may not feel like it, investors genuinely do have much to be thankful for this holiday season. Over the past year, investors have navigated both short-term challenges due to interest rate swings, the banking crisis, and political battles in Washington, as well as long-term uncertainty resulting from inflation, the Fed, geopolitical conflicts, and more. And yet, through all of this, major market indices have held onto strong gains, reversing much of last year's declines. How can investors maintain perspective as they reflect on the past year?

Many major asset classes have made strong gains this year

Financial markets and the economy have defied expectations in 2023. In many ways, the current environment represents the best-case scenario for which investors and economists could have hoped just a year ago. With only six weeks left in the year, the S&P 500 (Growth & Growth & Income Blend) has returned 19.3% with dividends and the Nasdaq 36.0% (Growth stocks only). International stocks have also performed well, with developed markets gaining 11.5% year-to-date and emerging markets gaining 4.8%. Interest rates climbed throughout the year but have retreated in recent weeks. For instance, the 10-year U.S. Treasury yield has declined from just above 5% to just under 4.5%. While a diversified bond, such as the Vanguard Total Bond Fund (BND) portfolio, has only returned about 1% this year, this is far better than last year's historic bear market decline and specific strategies with a more active approach like the PIMCO Income Fund have returned 4.8%. An important reason for these gains is the health of the economy. One year ago, economists expected a recession by the year's second half due to Fed rate hikes and early signs of stalling growth. Not only did this not occur, but the job market is still one of the strongest in history, with the national unemployment rate near 3.9%. GDP growth for the third quarter, a 4.9% annualized rate, was one of the fastest in recent decades. The strength of consumer spending, driven by excess savings during the pandemic, has helped drive the economy's demand side as the supply side recovers. There are signs that this is gradually filtering through to corporate profits, which may have reached an inflection point in the third quarter, after three-quarters of falling earnings. Another reason for these trends is the fact that inflation has improved significantly. Major inflation measures, such as the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE), are now in the 3% range on a year-over-year basis, down from highs of 9.1% and 7.1%, respectively. On a month-over-month basis, inflation improvements are even more striking with the CPI index flat from September to October. Other measures, such as the Producer Price Index (PPI) which measures inflation for businesses, have improved even more. Once again, these figures represent the rosiest scenario that economists could have predicted at the start of the year.

Inflation has improved significantly

Unfortunately, slowing inflation rates do not mean that prices will decline - only that they will rise at a slower pace. While this provides some relief, many households, especially those in or near retirement, may continue to find higher prices challenging. From an investment standpoint, however, both stocks and bonds have already benefited from greater price stability. The fact that the Fed may be near the end of its rate hike cycle only adds to the tailwinds that have propelled markets this year.

For example, technology-related stocks have been particularly sensitive to inflation and interest rates due to the forward-looking nature of their products and businesses. While they have performed well over the past decade, they also led declines in 2022 when rates rose suddenly. Decelerating inflation and stable interest rates have helped this group drive markets higher this year. Sectors such as Information Technology, Communication Services, and Consumer Discretionary have led major indices. As inflation continues to improve, the hope among many investors is that other sectors will begin to benefit as well.

Staying invested is still the best way to achieve financial goals

This past year's lesson underscores the importance of sticking to a financial plan. While it's tempting to wait for the next pullback to re-enter the market and get back on track, history shows that it's often better to be invested. This is because markets tend to rise over long periods of time, making both higher highs and higher lows. The accompanying chart shows that investors often wait long periods before the next pullback and, in doing so, forego periods of healthy returns.

The bottom line? Investors do have much to be thankful for this year. This can be difficult to recognize since it often feels as if markets move from one crisis to another. With the benefit of perspective, it's easy to see that the economy and financial markets have come a long way this year, hopefully setting the stage for investors to achieve their long-term financial goals.

To stay on top of the markets each week, remember to subscribe to our weekly video series - What We Learned in the Markets This Week.