The January Stock Market Indicator
As January goes, so goes the year, according to the January market indicator. But is the theory popularized by the Stock Trader’s Almanac correct?
- When the S&P 500 Index2 finished higher in January, the remaining 11 months were up 86.0% of the time, with an average gain of 11.9%.
- When the index lost ground in January, the index rose 60.7% of the time, with an average gain of 1.7%.
Source: LPL Research, data back to 1950. The S&P 500 Index is unmanaged and cannot be invested into directly. The modern S&P 500 was launched in 1957. The S&P 90 was used prior to 1957. Past performance is no guarantee of future results.
The S&P 500 lost 1.1% in January. Does this bode poorly for the rest of the year?
The historical proclivity of stocks is to rise.
According to Fidelity, U.S. stocks rose in all but 17 out of 73 years since 1945. So, the fact that stocks finish higher for the year so often after a positive and negative January may simply be the result of this directional bias.
In fact, 8 of the last 9 times January saw stocks lower, the final 11 months finished higher, with an average gain of 11.5% for the S&P 500 Index.
Investor’s corner
Volatility can never be ruled out. Market performance will likely be based on the economic fundamentals, as well as unforeseen events that may fuel gains or detract from stocks.
However, what the evidence tells us is that investors who adhere to a well-diversified financial plan are in the best position to manage any volatility and obtain their financial goals.
Created 2021-02-03 20:22:06
