Investors are often counselled against trying to time the market, as it rarely works out in the long run. It’s not only challenging trying to pull your money out of the market before a major decline, but just as much of a gamble when trying to buy back in before a significant rebound. 

As much as investors know this to be true, they may still make investment decisions to the contrary. That’s because our natural emotional responses to market volatility coupled with convincing opinions and outlooks from experts and influencers can tempt us away from our investment plan. 

There’s never a shortage of opinions on current market conditions as well as speculation about what should be in store for the future, but typically one of these narratives ends up forming the general consensus among investors and industry experts. These narratives can be compelling and often make a lot of sense at the time—especially when examining past market moves with the benefit of hindsight. The unfortunate reality is that the market often does not follow the narratives that it’s assigned and can behave in unexpected ways. The most recent rally in major equity markets provided a hard reminder of this for investors that re-positioned their portfolios in an attempt to avoid further declines.

The most predicted recession that never came

In early 2022, most market observers agreed that a US (and global) recession was highly probable by 2023. In fact, public opinion was even more pessimistic with many believing that they were already in the midst of a recession in 2022.

This consensus wasn't unsubstantiated. Inflation was high and increasing, central banks were raising interest rates at a historic rate, business and consumer sentiment were at historic lows, the yield curve was extremely inverted, and the stock market had stumbled drastically.

And yet, here in the second half of 2023, not only are we not in a recession, but sentiment has become far more optimistic. A recession is not widely expected this year and the notion of side-stepping one all together—or a so-called ‘soft landing’—no longer seems unrealistic.

The market also shrugged off other negative headlines including the war in Ukraine and a run on US regional banks which led to the second, third and fourth largest bank failures in US history. 

The future is uncertain

Even though the market ultimately resisted the narrative, it’s understandable why many investors held a pessimistic outlook for their portfolios. Early in the year, even Wall Street strategists predicted a down year for stocks in 2023 for the first time in decades.

In addition, the past year saw guaranteed cash investments (like GICs and high-interest savings accounts) offering returns not seen in years. These attractive rates paired with negative market sentiment led many investors to opt for a comfortable, guaranteed return over the uncertainty of a volatile market. Unfortunately, as many investors made the decision to reduce their risk, major equity market indexes turned around and began to rally, leaving some investors behind.