Strength in stocks in January could be a positive sign for the year

January’s stock gains may be a good sign for the rest of the year, although many strategists still expect continued turbulence and perhaps a new low before the market rallies late in the year. year.

The S&P500 was up 5.1% for January so far in Monday trading.

“Since World War II, if the market is up in January, it has continued to rise in the remaining 11 months of the year more than 85% of the time and the average gain is around 11.5% “said Sam Stovall, chief market strategist. at the CFRA. “So the old adage, ‘As January goes, so goes the year’, popularized by the Stock Trader’s Almanac, is a real one.”

The S&P 500’s average annual gain for any year is around 9%, but Stovall said when the prior year is negative there is historically a higher rebound and the rally averages 14% .

He said this year has even more reason to be higher, since other market performance indicators are also positive. For example, stocks were higher during the Santa Claus rally period during the last five trading days of December and the first two of January. They were also higher in the first five trading days of the month, which is seen as an indicator of the month’s overall performance.

“If you have a down year plus a positive Santa Claus rally plus a positive first five days, then in that case the market is up an average of 21% and the frequency of gains is 92%,” he said. -he declares. “If you add the third level, with the positive market in January, the market is up just over 29% and up 100% of the time.”

There’s even more chance of strong performance when the S&P 500 is up more than 5% in January, after a negative year, according to Carson Group’s Ryan Detrick. He noted in a tweet that the combination only happened five times, but the S&P 500 was higher for the year all five times with an average gain of 30%. The last occurrence was in 2019, when the January gain was 7.9% and the return for the year was 28.9%.

Stock market history shows that there are many reasons for this year to be good, but these years of data contrast with high concerns about a likely recession, Federal Reserve interest rate hikes and a deterioration of profits.

Jonathan Krinsky, chief market technician at BTIG, said the market improved technically in January and the S&P 500 notably broke its downtrend. But that doesn’t mean there won’t be a selloff and a test of the lows.

“All the strategists came out in November, and the consensus was low in the first half and things got better in the second half. And then I heard so many people say, ‘If everybody says that, so it’s a strong first half and we get the turnover in the second half of the year,” he said. “I don’t have a good sense of timing.

So far this year, the mean reversion trade has been successful, which means that last year’s losers have become winners.

ARK Innovation ETF was the beacon child of the growth stock price destruction, but it was down 25% in January despite still being down 48% over the past year.