What Could the Year of the Rabbit Hold for Financial Markets?
As the Year of the Tiger winds down, it’s clear to see that many of the characteristics associated with the tiger, according to the Chinese Zodiac, did play out. The Tiger is associated with adventure, rebellion, power and unpredictability. And 2022 has seen more than its fair share of both. The year has been marked by worldwide protests, from Iran to China, Russia/Ukraine, highly volatile and unpredictable markets and the adventure of supply-chain disruptions.
Now, the Chinese Lunar New Year, which starts on January 22, 2023, will mark the beginning of the Year of the Rabbit. More specifically, the year of the Water Rabbit. The Water Rabbit is characterised as gentle, amicable and ready to adjust to different situations, but with a “weak mindset and principles.” In addition, the rabbit is associated with vigilance, cautiousness, agility and self-protection.
All these traits might come in handy for traders and brokers as we enter a new year with the threat of inflation and recession still very real. The good news is that the rabbit is also symbolic of peace and prosperity, which gives us hope for 2023.
What Could the Markets Look Like in the Year of the Rabbit?
The first sign of good luck, is that analysts believe that the global economy is unlikely to be at any imminent risk of falling into recession, given that a decline in inflation usually promotes growth. In fact, analysts are hopeful that any signs of recession in the US are likely to end before the end of 2024. According to analysts at JPMorgan, the S&P 500 is likely to retest its 2022 lows in the first half of the Year of the Rabbit, and any pivot by the Fed in its policy stance could drive market recovery later in the year. This could lead the S&P 500 to end 2023 at 4,200.
Charles Schwab, on the other hand, believes that the good news for risky asset classes in 2023 could come from central banks being forced to alter their stance regarding interest rate cuts, which could drive a sustained recovery in asset prices and the global economy by the end of 2023. But most of the year could see volatility as the markets navigate between inflation concerns and economic growth, as central banks ease rate hikes and China reopens. China’s reopening is cause for hope, given that it is likely to unleash the pent-up demand of the world’s second-largest economy.
Meanwhile, Goldman Sachs commented that many of its clients have rebalanced their portfolios with defensive value-oriented stocks to protect themselves against any late-cycle macroeconomic headwinds. Analysts recommend focusing on stocks of high-quality companies that are a fit with Goldman Sachs’ investing themes for 2023 of US pre-eminence, health balance sheet and US dollar strength.
image Source: Trade Brains
But an environment characterised by lower inflation, slow growth and new monetary policies could drive upside for bonds and the emerging markets. Therefore, investors will need to be cautious, alert and tactical, just like the rabbit, paying close attention to regulatory and legislative policy, the economy, corporate valuations and earnings, according to Morgan Stanley’s Chief Investment Officer and Chief US Equity Strategist, Mike Wilson. He recommends focusing on stocks that have outperformed through the volatile markets of 2022 and contributed to the outperformance of the global stock markets in 2021.
In the forex market, Deutsche Bank expects the dollar dominance to wane going into 2023, given that the aggressive Fed rate hikes are already priced in. The euro, on the other hand, might stabilise due to persisting inflation in the Eurozone, compared to the US.
Be the Rabbit in 2023
Just like the popular fable of the hare and the tortoise, Chinese folklore also talks about the pride and arrogance of the rabbit. The rabbit made fun of the slowness of the ox. Then, one day, all the animals were invited by the Jade Emperor and the speedy rabbit was first to reach. Seeing no other animals in sight, he felt overconfident about being first and decided to take a nap before proceeding to the palace. The result was that he was beaten to the palace by three other animals, one of which was the ox that he had ridiculed.
So, the lesson for 2023, given the predictions of continued market volatility, albeit with some hope of a recovery in most asset classes, is to find the right balance between speedy decision-making and caution. The Water Rabbit is also known for its reasoning skills and attention to detail; characteristics that will stand market participants in good stead during uncertain times.
Preparing your content for 2023? We researched and planned all the key dates financial marketers need to know about in 2023 and put them in this killer calendar. These include dates for market moving events like Initial Jobless Claims, Fed Interest Rate Decision & Press Conference and FOMC Minutes. Public holidays around the world and even finance hashtags, event hashtags and fun social media days for planning great content.