Stock markets started January 2023 on a strong footing with gains across global equities.
What exactly happened?
China’s re-opening after abandoning the Zero-Covid policy in late December helped propel the advancement.
Signs that inflation is easing from its autumn highs in several major regions also supported sentiment, even though central banks may be close to the peak of their rate hiking cycle.
Emerging markets outperformed their developed counterparts.
In fixed income markets, bond yields fell (meaning price rose).
While the return on commodities was also negative for the month.
3 things I observed could have sparked Mr Market’s move during January.
1. Money are rotating to the previously unfavorable stocks
The S&P 500’s worst-performing sector in 2022 has led a rally in 2023 as investors bet on an early rebound in U.S equities.
Guess which sector is the worst-performing sector?
The S&P 500 communication services sector, which fell by more than 40.4% in 2022 has risen by about 9.6% so far in 2023. This is the best performing sector in the large-cap index over the first three weeks of the year.
Hence, this shows that people are starting to find value in such unfavorable stocks. Big money as well as retail money are flowing into such equities.
2. Investors are boosting PE
The S&P 500’s forward PE has jumped back to 17.9 times, near the peak level of 18.0x-18.5x it traded to over the past decade of the pandemic highs.
“While this is typical during the early stages of a new bull market, since prices tend to advance well before earnings and the economy turn up, we remain skeptical,” Lerner wrote.
As to whether this January rally will last throughout the year, no one knows!
3. Investors are desperately trying to make back their gains
Stock Markets throughout every country have all been positive through January 2023.
One notable finding I found is, the return of investments particularly in emerging markets.
MSCI EMU (European Economic and Monetary Union) in particular had a net return of an astounding 11.6% in just January 2023 alone. This index focuses primarily on Europe countries such as France, Germany, Netherlands, Spain and Italy making up over 90%.
The Question of the century will be: How will the stock market do in February? My answer is: Who knows? No one has a crystal ball to tell the future. As such, it is important to be disciplined and maintain our investment strategies. Be it investing in trachea or DCF into a particular ETF/stock.
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