This year has been full of surprises, prompting investors to reset their expectations more than once.

In January, the mood was solemn as markets were still recovering from 2022’s sharp decline, and a recession felt inevitable. But then an AI-fueled tech rally lifted the U.S. stock market, while returns in Europe and Japan proved to be stronger than expected. The lesson? Market surprises should not be surprising.

What’s next for investors as we grapple with higher-for-longer interest rates and slowing-but-persistent inflation? Here are five of the most important trends to watch as the year unfolds:

1. A rolling recession may have already begun

Many economists predicted an imminent recession when the Federal Reserve first increased interest rates more than 18 months ago. Eleven hikes later, a broad economic downturn hasn’t materialized.

But what if the recession already happened? Just not all at once.

A rolling recession occurs when industries rise and fall at different times, creating pain in certain sectors while others flourish. For example, the travel and energy sectors cratered in 2021, but have since rebounded strongly. Likewise, housing and semiconductor stocks slumped in late 2022 before picking up in recent months.

In such an environment our portfolio managers seek to take advantage of these “mini-recessions” by looking for potential opportunities in industries on the rebound, rather than focusing too much on the timing or magnitude of a broad recession.

2. Resilient consumers could lead a strong economic recovery

Whether a rolling recession is already underway or a more traditional one is on the horizon, many investors are wondering what’s next.

The good news is that there are several reasons an eventual recovery could be relatively strong.

For one, the U.S. consumer appears to be in relatively good shape. Household debt was only 9.8% of disposable income as of June 30, 2023 — much lower than during the global financial crisis and other typical recessions. Supported by a strong labor market, resilient consumer spending could boost a range of industries including travel and leisure.

Secondly, a number of U.S. companies have cleaned up their inventories and balance sheets. The average interest coverage ratio — a measure of earnings over interest payments — is higher than it was during the past three recessions.

These factors combined could paint an optimistic long-term picture for investors during this period of uncertainty.

3. Mountain of cash could be a bullish sign for investors

One of the most notable trends of the year has been investors’ flight to cash and cash equivalents. Money market fund assets ballooned to a record $5.6 trillion as of September 27, according to the Investment Company Institute.

Our analysis reveals that levels of cash have tended to peak around market troughs and shortly before market recoveries. The S&P 500 Index surged after both the global financial crisis and COVID-19 pandemic, returning at least 40% within three months of each market bottom.

Investors who stayed on the sidelines would have missed these market recoveries, potentially impacting their ability to achieve their long-term goals.

4. There have been windows of opportunity between a Fed pause and cut

While many investors may be planning to remain on the sidelines until the Fed starts cutting rates, our research shows that could be a mistake.

That’s because there have been windows of opportunity between the Fed’s last rate hike and first cut. We looked at asset class returns in the year after the Fed stopped hiking rates across the last four cycles. Our analysis revealed that cash had the lowest average returns during such periods, soundly outpaced by stocks, bonds and balanced portfolios.

In these instances, the first interest rate cut has been, on average, 10 months after the final rate hike. Investors who wait too long risk missing out on potential gains. Although the central bank’s most recent projections signaled one more rate increase before year-end, it appears the Fed is nearing the end of its current hiking cycle.

5. Bull markets have dominated bear markets

Bulls defeat Bears, 67 to 12. While that might sound like the lopsided score in a sporting event, it highlights an important fundamental truth about the stock market.

Our analysis of all market cycles since 1950 revealed that while the average bear market has lasted 12 months, the average bull market has been more than five times longer.

The difference in returns has been just as dramatic. Even though the average bull market has had a 265% gain (versus a 33% decline for the average bear market), recoveries are rarely a smooth ride. Investors often face unsettling headlines, significant market volatility and additional equity declines. But those able to move past the noise, take a long view and stay invested through market cycles stand a better chance of scoring long-term gains.