With 2022 finally over, and not soon enough, such is an excellent time to review our “investor resolutions.” However, before we commit to our resolutions, let’s check what the month of January may have in store.
So Goes January
There is an abundance of “Wall Street Axioms” surrounding the first month of the New Year as investors anxiously try and predict what is in store for the next twelve months. You are likely familiar with the “Superbowl Indicator,” “So Goes The First 5 days. So Goes The Month,” and “So Goes The Month, So Goes The Year.”
Considering that trying to predict the markets more than just a few days in advance is mostly an exercise in “folly,” it is nonetheless a traditional ritual as the old year passes into the new. While Wall Street consistently espouses overly optimistic projections of year-end returns, reality has often tended to be somewhat different.
However, from an investment management perspective, we can look at some of the statistical evidence for January to gain insight into future performance tendencies. From this analysis, we can potentially gain some respect for the risks that might lie ahead.
According to StockTrader’s Almanac, the direction of January’s trading (gain/loss for the month) has predicted the course of the rest of the year 75% of the time. From a broad historical perspective, the chart below shows the January performance going back to 1900.
Furthermore, twelve of the last sixteen presidential election years followed January’s direction. Speaking of Presidential election years, a new president’s first year statistically has the lowest average return rate, with roughly a coin toss of being a positive year. However, while 2021 yielded a strong return, 2022 did not. Ironically, it was the same under President Trump.