Certainly the outlook for 2023 is downbeat – a carry over, if you like, from 2022. The IMF is forecasting lower global growth for 2023 with the possibility of recession likely for one in three countries. Major companies are laying off staff.
Rising inflation has resulted in a massive tightening of monetary policy by major countries and this trend is likely to continue into 2023 albeit at a slower pace. Then, of course, there is Russia’s war in Ukraine which continues to affect energy and food prices and global markets in general. All in all, it’s a fairly grim picture.
In our quest to find something positive amidst the gloom, an article by Jim O’Neill caught our eye. As you may know, O’Neill is the former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister. He is also the author of the acronym BRIC before it became BRICS!
O’Neill cites the “five-day rule” as cause for some optimism. Basically the rule states that if the S&P 500 index in the US is net positive for the first five trading days at the beginning of a calendar year then that year will be a good one for equities. O’Neill had this checked and it was found to be 80% correct during the period 1950 to 2014. Admittedly we’re a little concerned that the test period wasn’t longer!
Be that as it may. During the first five trading days this year the S&P 500 was 1% positive. To date the index is now 4% positive. Our own JSE All Share index is up by 8.5% and the currency has held steady against the US Dollar and this despite the Eskom woes.
O’Neill is at pains to point out that the “five-day rule” is not full proof. After all there is a 20% chance that it doesn’t hold true and that the current year might be just one of those which proves an exception.
Nevertheless, inflationary pressures do seem to be easing and despite central banks remaining hawkish, we can expect interest rate hikes to ease during the course of the year although we should not expect any actual rate cuts until 2024. Here’s hoping that maybe the cuts come sooner than that.
Furthermore, China appears to have abandoned its severe Covid lockdown and once again its economy is opening up as an essential part of global trade. China experienced its lowest GDP growth in 2022 (3%) for some 50 years. Furthermore, for the first time in just over 60 years China’s population contracted by some 850 000 in 2022 (total 1.41 bn). Can we expect a drive for growth in 2023 as a consequence?
The era of US Dollar strength may be over and although the Dollar will remain the world’s pre-eminent currency, that should herald strengthening in other global currencies.
Major shifts in the Tech sector have taken place and the emphasis may now be on industry support such as in the healthcare and manufacture sectors of the global economy rather than on the individual consumer.
Coming back to the five-day rule, if markets are still positive going into February then maybe the optimism we talked about earlier might just become more of a reality.