The S&P/ASX 200 Index (ASX: XJO) is off to a smashing start in 2023.
In January, the benchmark index gained a stellar 6.2%. That marks its best first month of the year ever.
And with the first two days of February also delivering gains, the ASX 200 is now up 7.2% since the closing bell on 30 December.
That strength has been driven by a resilient Australian economy and early signs that inflation is easing across the developed world. Meaning investors might expect a more dovish stance from the RBA, the Fed, and other leading central banks.
But with those outsized gains already booked, what can ASX 200 investors expect for the rest of 2023?
A bullish outlook for ASX 200 shares
A strong January performance historically tends to support strong share market performance for the remainder of the year.
According to Bell Potter analyst Richard Coppleson (courtesy of The Australian), investors can look forward to a positive share market performance – with an average gain of 7.5% – 73% of the time when the All Ordinaries Index (ASX: XAO) gains at least 6.5% in January.
The All Ords came within a whisker of that, gaining 6.43% in January. It's currently up 7.38% in 2023.
Wilsons Advisory analyst David Cassidy points to China's reopening as offering some healthy tailwinds for ASX 200 shares. Cassidy is also optimistic that easing inflation could see the RBA and Fed cut interest rates.
Markets should also be supported by resilient consumers and the potential for the RBA to deliver a soft landing for the Aussie economy.
According to Cassidy:
Consumers continue to spend at a decent clip. This is supportive for the local sharemarket, though sector-specific headwinds in respect of mining – from a frothy iron ore price – and banking – from slowing revenue growth – will likely cap the degree of upside for the local market this year.
Sounding a note of caution for the ASX 200
Former treasurer and current chair of the Future Fund Peter Costello makes the case for ASX 200 investors to think defensively in 2023.
Costello says interest rates are still going up, inflation remains well above central bank target ranges, and investors should not ignore the downside risks of a potential global recession.
"Real returns to investors, with the context of significant inflation, will be substantially below the experience of recent years," he said (quoted by The Australian).
"The cycle of rising rates to control inflation is not yet complete and brings with it the possibility of recessions in much of the developed world."
Foolish takeaway
We know that the ASX 200 has had its best start to the year in its history.
We can only speculate on how the benchmark index will finish out the rest of the year.
But we do know that some stocks will widely outperform the pack while others trail.
Invest wisely.
