Updated: Jan 12
Markets have bounced into the New Year with a surge of positive energy - all on the back of positive data in the US and Europe. Markets were led by European indices, and encouraged by a drop in CPI inflation figures back below 10%. Is inflation finally on the way down?
Economists are keeping their fingers crossed that inflation eases in the coming year. This would allow central banks to ease up on interest rate hikes (their main tool against inflation) and this in turn would ease pressures on equity markets.
Add the better than expected US job figures, and economists are feeling a wave of optimism that perhaps - just perhaps - the markets will get the soft landing they hope for. We will find out more tomorrow when December inflation figures are released by the US Bureau of Labor Statistics.
Despite the strong start, the year ahead still presents many challenges. War still ravages Eastern Europe, the major economies are overburdened with debt as a result of the pandemic and years of reckless borrowing, and inflation is still way above the 2% recommended by central banks. What will the year bring? Nobody knows for sure, but there is no harm in enjoying the reprieve and trusting that better times will come. History teaches us that short term volatility is rarely a good indicator of the long term prognosis, and that a solid plan that annualises the good (and the bad) years over the long term, tends to be good practice.
Regardless of the markets, I think we should all pray for peace in 2023, that humans will learn to live in harmony with each other, and nature. The suffering in Ukraine will mar the history books of our time, and the corruption in the highest corridors of power will echo through the years ahead. However, in times of adversity there is great opportunity. As any contrarian investor - not least Warren Buffet - would tell you, buying into the fear of market shocks and selling into the greed of market euphoria can be a lucrative strategy, and one which we might want to consider in these interesting times.
"Like it or not, we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind. And everyone here will ultimately be judged - will ultimately judge himself - on the effort he has contributed to building a new world society and the extent to which his ideals and goals have shaped that effort".
- Robert Kennedy