It has been an interesting start to the New Year. Just a couple of weeks into 2023, our FTSE 100 Share Index looked as though it might break out into new high ground and top the peak achieved nearly five years ago. Some profit taking did take place and the Footsie remains a few percentage points shy of the 2018 record as I write. Still, it was an impressive performance, given the level of industrial unrest, continuing geo-political concerns and an opaque economic outlook, so this market could yet surprise us all.
There has been some more encouraging news around to give substance to the improvement in sentiment. Retail sales held up remarkably well over the Christmas period, while unemployment figures published recently painted a more optimistic picture of the labour market than we might have expected. This may, of course, toughen the Bank of England’s stance on interest rates, but much will depend on whether a recession can be avoided. At least inflation fell a little, though it still sits above 10% - an uncomfortably high figure.
Looking outside these shores, we find a very mixed scenario, with inflation coming down faster than expected in America, but Chinese economic growth clearly impacted by the effect of Covid. At around a 3% uplift in Gross Domestic Product, the expansion in the Chinese economy falls way short of the proclaimed target of 5.5%, but was actually ahead of forecasts. However, the Chinese population is shrinking, adding to demographic woes. Life is getting tougher in the world’s second largest economy.
Back home it is still too early for companies to be reporting their results for 2022. With oil and gas prices falling, there is hope that the peak of inflation has been passed. However, wage rises are still trailing the rise in the cost of living, despite the highest uplift in more than 20 years. And the public sector is lagging private pay. More strikes seem in prospect, particularly as the Treasury seems set on keeping the purse strings tightly held.
We have, of course, had the usual plethora of forecasts for what the year ahead may hold in store. I do my best to ignore them as they could well result in decisions being made that look foolish with the benefit of hindsight. Warren Buffett’s maxim that it is time in the market, not timing, that should govern an investor’s strategy still holds good in my book. The background may look gloomy, but markets have a habit of anticipating events, so perhaps renewed optimism is not misplaced. It is, indeed, an ill wind that blows nobody any good.