2023 has delivered change already - but don’t try too hard to predict what’s next in the markets.
Last year was a doozy. Here in New Zealand, we were gripped by headlines around the cost of living crisis, housing, and extreme weather events. There were happy items; like borders opening and Kiwis being able to visit their loved ones, the first annual Matariki holiday, and the Black Ferns’ Rugby World Cup triumph.
It was an up-and-down year for markets too—in the end, one with more down than up. The world gave financial markets a lot to process. The coronavirus pandemic eased but remained a global concern, as did the supply-chain issues that accompanied its arrival. Inflation reached a 40-year high in the US, and the Federal Reserve pursued a series of interest rate increases to combat rising prices, actions similar to those taken by other nations’ central banks. Russia’s invasion of Ukraine in February brought uncertainty about political stability and energy prices, among other worries. Against this backdrop, equity and bond markets fell for the year, despite several rallies.
Every year, we update our mosaic tracking the randomness of returns over the past decade. The 2022 year is a pretty ugly addition. 2023 so far though – what a difference a month can make! The S&P NXZ50 Index is up 3.80% year to date. Nasdaq is up 11.89%, on its way to its best January since 1999.[i]
Then there’s inflation, which is already starting to flatten – and flattening is a win when for a while it was just going up (and up, and up…). The consumers price index from Stats NZ was 7.2% for the December quarter, the same as it was in the previous September announcement… and before that, it was at a very similar 7.3%.[ii] We’re no longer seeing those dramatic hikes from announcement to announcement, which is an encouraging trend.
As of writing this article, the next OCR announcement is mere weeks away and already some big banks have slightly reduced their predictions for where the peak will occur. Some of this buzz may be indicative of the hope caused by falling inflation rates overseas, but locally signs do seem to be pointing to inflation reaching finally reaching – if this trend continues – its peak.
And then we come to property, which has been a hot topic throughout this economic volatility. According to Infometrics, house prices are expected to be 22% down from their peak in 2020 by the end of 2023. The affordability aspect of the housing crisis is unlikely to be resolved by this dip, however, as house prices are still forecast to be 17% higher than they were in 2019.[iii]
What goes up must come down, and vice versa. How long it takes (and how ugly the landing) is something we can but speculate.
In the span of a month, we’ve seen all of the above come to light. We’re at the start of a new year, and (hopefully) getting to the end of inflation. It will likely still be a rough few years, but there’s at least a glimmer of light at the end of the tunnel now. If this was just January – imagine what the rest of the year may bring.
Markets move on new information which is incorporated into prices immediately. Those prices reflect the aggregate views of millions of participants, so unless you have information that no-one else is privy to, you are unlikely to get an edge by trying to time your entry and exit points.
What matters for individual investors is whether they are on track to meet their own long-term goals detailed in the plan designed for them. Unless you need the money next week, what happens on any particular day is neither here nor there. It is the long-term returns that count.
As to what happens next, no-one knows for sure. That is the nature of risk. In the meantime, you can protect yourself against volatility by diversifying broadly across and within asset classes, while focusing on what they can control – including your own behaviour. If you’re after a second opinion or need some help demystifying your financial roadmap, getting in touch with a trusted fiduciary for a chat is always a good place to start.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.morningbrew.com/daily - stock data as of market close 30/01/23.
[ii] https://www.nzherald.co.nz/business/inflation-how-high-will-new-zealand-go-in-consumer-data-as-cost-of-living-bites/5D5UOS2OSBA3NBK74TIZLZE2GE/
[iii] https://www.infometrics.co.nz/article/2023-02-inevitable-recession-as-household-spending-is-quelled
