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Market Extra: 2022 was the ‘biggest outlier year’ in markets history as stocks and bonds both plunged, Deutsche Bank says


U.S. markets experienced a historic reckoning in 2022 after the Federal Reserve’s efforts to combat the worst inflation in decades sent stocks and bonds reeling.

But how bad were these losses compared with history? In a note on Wednesday, Jim Reid, the head of thematic research at Deutsche Bank, shared a chart that helped put the performance of stock and bond markets in context.

Years where both stocks and bonds fell in tandem were few and far between, which is one reason why last year’s brutal losses marked “the biggest outlier year in history,” Reid said in the note. As the chart below shows, 2022 saw the worst combined total return for both stocks and bonds dating back to 1872.


See: Treasury yields post record rise in worst year ‘within any of our lifetimes’ for bond investors

As Reid explained, 2022 marked the first year where both the 10-year Treasury note

and the S&P 500 index

lost more than 10% on a total-return basis in a given calendar year.

The 10-year yield jumped 2.33 percentage points, the largest on record based on data going back to 1977, according to Dow Jones Market Data.

This translated to a price drop of 17%, according to DB’s data, while the S&P 500 shed 18.1% on a total-return basis. Measuring performance on a total-return basis factors in dividends paid out to holders of U.S. stocks, as well as coupon payments received by bondholders. If one excludes dividends paid by America’s largest companies, the S&P 500 fell 19.4% last year, the worst annual performance since 2008.

In a separate note, Bank of America Equity and Quantitative Strategist Savita Subramanian pointed out that 2022 was also the worst year on record for 30-year bonds, which were down 33%, according to BofA data.

As both stocks and bonds fell, the much-heralded portfolio of 60% equities and 40% bonds dropped 24%, the worst return for this type of a portfolio since 1930, and investment-grade corporate bonds lost 15%, Subramanian said.

Years where stocks and bonds both declined are rare, but if there’s a silver lining to be found, it’s that years where both stocks and bonds declined were typically followed by a sharp rebound, according to data shared by the Leuthold Group.

While the sample size is tiny, the S&P 500 logged an average total return of 17.6% in the following year after stocks and bonds declined in tandem, the Leuthold Group data showed.

Meanwhile, the 10-year Treasury note produced a total return of 7.4% on average during these rebound years.

Leuthold Group

But there’s at least one factor that could complicate this historical relationship, Leuthold Group said. In the past, equity valuations were much lower than they are now.

At the start of these rebound years, the S&P 500’s average normalized price-to-equity ratio was 12.5x. By contrast, it was 24x at the end of 2022, according to Leuthold Group.

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