Does a Down January Dog the Rest of the Year? Probably

There's a tradition of prominence given to Wall Street adages.

"You won't go broke taking profits."

"Cut your losses, let your profits run."

"Sell in May and go away."

"The trend is your friend."

Following the dismal performance of the equity markets in January, one adage getting attention lately is, "As goes January, so goes the year." But is it true? Do equity markets generally produce negative results for the remainder of the year following a down January? There's certainly plenty of interest following this January's -3.46% decline of the S&P 500 Index.

The answer depends, to some extent, upon the period you sample. For example, over the last 20 years, when the S&P 500 was down in January, its return from February through December was 4% on average. However, looking back over 60 years, the S&P 500's average nominal return from February to December during a down-January year drops close to 0%. All-in-all, the saying doesn't quite live up to its billing, but it does generally herald lower returns on equities for the subsequent 11 months in the calendar year.

The market also tends to discount the strength or weakness of anticipated economic activity, and some negative Januarys were indicators of weak (or negative) growth during the year. In periods preceding a recession or near-recession, when January's S&P 500 return was negative, February through December followed suit. Excluding these periods does improve the data a touch:


Average S&P 500 Returns

February to December

Average S&P 500 Returns

February to December excluding years

preceding recessions and near-recessions

1994 – 2013 (20 years)



1984 – 2013 (30 years)



1974 – 2013 (40 years)



1954 – 2013 (60 years)



1944 – 2013 (70 years)



This is important if you hold a positive view of the state of the US economy (as many currently do).

Another interesting detail is the improvement of average annual S&P 500 returns following a negative January in the more recent history of the US equity markets. Nevertheless, the general bias is for a negative January to herald lower returns than when the month is positive:

S&P 500 Index Returns: 1984 to 2013 (30 Years)

Average Returns

February to December


When January is Negative



When January is Positive






Median Returns

February to December


When January is Negative



When January is Positive






One last thing to note is that there is a higher incidence of negative returns from February through December, and for the year as a whole, during years when January is negative versus years when January is positive.

S&P 500 Index Returns: 1984 to 2013 (30 Years)


Feb. to Dec.


Number of Negative Return Periods




Frequency of Negative Return Periods




Number of Coincident Negative Return Periods

(when January was negative)



Frequency of Coincident Negative Return Periods

(when January was negative)



The bottom line for investors is that a negative January tends to herald lower (though not necessarily negative) returns for the subsequent 11 months.

Copyright 2014 Saturna Capital Corporation and/or its affiliates. All rights reserved. Vol. 8 · No. 2

Saturna Capital publishes From The Yardarm Market Commentary & Analysis monthly. To subscribe,click here.

Saturna Capital does not share subscriber information with third parties.

Important Disclaimers and Disclosures

This report is intended only for the information of the reader and is not to be used for or considered as an offer or the solicitation of an offer to sell or buy any securities or other financial instruments of any kind, including without limitation, any mutual fund or other product offered, sponsored, created, or managed by Saturna Capital Corporation or its subsidiaries or affiliates ("Saturna"). This report is not intended for distribution to, or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country, or other jurisdiction in which such distribution, publication, availability, or use would be contrary to law or regulation or which would subject Saturna to any registration or licensing requirement within such jurisdiction.

This document should not be considered as providing investment advice or services, or any other service offered by Saturna. Saturna may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. Saturna will not treat recipients as its customers by virtue of their reading or receiving the report.

Nothing in this report constitutes investment, legal, accounting, or tax advice or a representation that any investment or strategy is suitable or appropriate to a particular investor's circumstances or otherwise constitutes a personal recommendation to any investor. Saturna does not offer advice on the tax consequences of any investment.

All material presented in this report, unless specifically indicated otherwise, is under copyright to Saturna. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied, or distributed to any other party without the prior express written permission of Saturna. Unless otherwise indicated, all trademarks, service marks, and logos used in this report are trademarks or service marks of Saturna.

The information in this report was obtained from sources Saturna believes to be reliable, and Saturna believes the information and opinions in the material are accurate and complete as of the date of this material. However, information and opinions contained herein will change over time and without notice. Saturna has no obligation to update or amend any information or opinions at any time. Saturna makes no representations as to the accuracy or completeness of this material, nor does it have any responsibility to ensure that any other materials, including any containing materially different information, are brought to the attention of any recipient of this report.

Under no circumstances shall Saturna, its employees, or any affiliate be responsible for any investment decision by any recipient. This material is distributed on condition that it will not form the sole basis or a sufficient basis for any investment decision by any recipient. Any recipient who is not a market professional or institutional investor should seek the advice of an independent financial adviser prior to making any investment based on this report or for any necessary explanation of its contents.

Saturna does not provide tax, legal, or accounting advice. Investors should consult their own tax, legal, and accounting advisers before engaging in any transaction. In compliance with IRS requirements, recipients are notified that any discussion of US federal tax issues contained or referred to herein is not intended or written to be used for the purpose of (A) avoiding penalties that may be imposed under the Internal Revenue Code; nor (B) promoting, marketing, or recommending to another party any transaction or matter discussed herein.

The Dow Jones Industrial Average is a price-weighted index of 30 of the largest, most widely held US stocks. The S&P 500 is an index comprised of 500 widely held common stocks considered to be representative of the US stock market in general. The Russell 1000 Growth index is a widely recognized index of large-cap growth stocks. The Russell 2000 Index is comprised of US small cap stocks and measures the performance of the 2,000 smallest US companies in the Russell 3000 Index. The NASDAQ Composite index measures the performance of more than 5,000 US and non-US companies traded "over the counter" through the National Association of Securities Dealers Automated Quotation system. The MSCI EAFE Index, produced by Morgan Stanley Capital International, measures the equity market performance of developed markets in Europe, Australasia, and the Far East. The MSCI Emerging Markets Index, produced by Morgan Stanley Capital International, measures equity market performance in over 20 emerging market countries. Barclay's Capital US Aggregate Bond Index measures the performance of the US bond market. All indices shown are widely recognized unmanaged indices of common stock prices that reflect no deductions for fees, expenses, or taxes. Investors cannot invest directly in the indices.

Past performance does not imply or guarantee future performance, and no representation or warranty, express or implied, is made regarding future performance. The price for, value of, and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of foreign securities and financial instruments is subject to exchange rate fluctuations that may have a positive or negative effect on the price or income of such securities or financial instruments. Investors in securities such as American Depositary Receipts — the values of which are influenced by currency volatility — effectively assume this risk.

Please consider an investment's objectives, risks, charges, and expenses carefully before investing. To obtain this and other important information about the Amana, Sextant and Idaho funds in a current prospectus or summary prospectus, please visit or call toll free 1-800/SATURNA. Please read the prospectus or summary prospectus carefully before investing.

© Saturna Capital

Read more commentaries by Saturna Capital