Investors could not have hoped for a much better start to 2023 for UK stocks. The flagship FTSE 100 index is up approximately 4% year-to-date to trade within sights of its all-time high from May 2018 (when it briefly topped the 7,900 mark) and the more domestic-facing FTSE 250 has risen by circa 5%.

The market’s mood has been supported by signs inflation is being brought under control, particularly in the US. This has raised hopes the long-awaited pivot by the US Federal Reserve away from interest rate hikes is in the offing.

The gains in the UK have been replicated overseas with most global indices making solid progress in the first days of January. Within this wider trend some stocks and sectors have performed exceptionally well. Two areas in particular stand out - namely travel and retail.

In both cases shares had previously been sold off due to the sectors’ exposure to what has been seen as an increasingly stretched consumer. And in both cases reality has turned out to be more positive than the bleak projections.

Retail bellwether Next (NXT) set the ball rolling with a strong Christmas trading update (5 January) and its peers have followed suit.

People were clearly willing to splash out at Christmas. They were able and willing to go out to the shops - particularly retail parks where train strikes had less of an impact - and the exit of several big names during the pandemic left the way clear for the retail survivors to outmatch expectations. Even beaten-up ASOS (ASC) did better than feared.

Pent-up demand for overseas holidays remains a strong driver for airlines and the wider travel industry. Bank of America data shows intra-European airline bookings were up 42% in the week to 8 January 2023 on 2019 levels and on 12 January American Airlines (AAL:NASDAQ) lifted its fourth quarter revenue guidance from an 11%-13% range to a 17% increase on pre-pandemic levels.

The UK’s largest network of independent travel agents, Advantage Travel Partnership, said year-to-date sales were up 75% on the same period in 2022. EasyJet’s (EZJ) trading update on 25 January will provide further insight into the health of the industry.

Whether the market’s early momentum in 2023 is maintained and whether retailers and travel shares will continue to lead the way will depend on two intertwined factors.

First, will inflation continue to ease, and central banks respond by holding or even cutting rates; and second, will consumers continue to demonstrate resilience in their spending? Notably several retailers were cautious on the outlook while flagging bumper festive trading.