Will stock markets ‘jump’ in the Year of Rabbit?

 

WE take a look at historical stock market returns during Rabbit Years in the past to give us a glimpse of what could happen in the upcoming Rabbit Year

Needless to say, 2022 was an eventful ‘Tiger’ year.

The training wheels came off in 2022 when significant fiscal and monetary policy support came to an end and was then reversed.

It caused a tempest, and if it were to stop today, 2022 would mark the first time that US stocks and long-term bonds have both decreased by more than 10 per cent in the past 150 years, and both markets have experienced significant declines.

In the early months of 2022, the Russia-Ukraine war sent the already-elevated inflation climbing even higher, on the back of disruptions to food supplies as well as soaring energy prices.

The US Federal Reserve and other central banks around the world were forced to play catch-up, raising interest rates at the fastest pace in decades.

With aggressive tightening in place, economic growth has waned, and the world is now on the brink of a recession.

At a glance, 2022 was a tough year for equity markets.

Amidst high inflation and the most aggressive tightening campaign in decades, major global indices experienced double-digit losses, with the S&P 500 having recorded its worst yearly performance since 2008.

 

Will stock markets jump in the Year of Rabbit?

According to traditional Chinese calendar, 2023 is the Year of the Rabbit, other Rabbit Years in recent history include 1939, 1951, 1963, 1975, 1987 and 2011.

As shown in Table 1, Dow Jones Industrial Average and S&P 500 returned positively on 6 out of the 7 occasions.

The only time that markets experienced negative returns was in 1987 during the events of Black Monday.

For this article, we will be looking at the Dow Jones Industrial Average and S&P 500 performance due to their longer track record and data.

On average, the Dow Jones Industrial Average returned 13.9 per cent, while the S&P 500 returned 13.5 per cent across the past seven Rabbit Years.

In particular, 2023 is the Year of the Water Rabbit.

The last time Water Rabbit came about was 60 years ago in 1963, when the Dow Jones Industrial Average and S&P 500 jumped 20.8 per cent and 21.5 per cent respectively.

Although historical data seems to point towards a good year for investments going forward, we want to reiterate that past performance/feng shui is not a guarantee of future performance.

At iFAST, we are proponents of fundamental and value investing, rather than feng shui.

With valuations across equity markets now brought down to attractive levels, various investment opportunities have resurfaced for investors again.

At the same time, we believe it pays to be more selective to try to pick the potential outperformers during a volatile market.

 

Table 1: Historical Rabbit Year Stock Market Performances. Source: Bloomberg, iFAST compilations. With dividends reinvested and in local currency terms.

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