With a New Year beginning, midterm elections ahead, and lingering items remaining from the not too distant past including; COVID 19, the ongoing government and Federal Reserve’s monetary responsiveness, a continued economic recovery, and constant polarizing politics, it appears that the new normal looks a lot like the old normal.
Nevertheless, straight from the widely watched “January Barometer,” the Wall Street saying goes, “As goes January, so goes the year.” This theory, devised by Yale Hirsch, founder of the Stock Trading Almanac Series, in 1972 suggests a correlation between January’s S&P 500 performance and the index’s full-year return. Going back to 1950, when the S&P 500 was positive in January, 86% of the time, the full year turned out to be up, according to Stock Trader’s Almanac. In addition, since 1950 with the exception of last year, every down January was succeeded by either a new or continuing bear market, a 10%+ correction (after January), or a relatively flat year.1
This year, we witnessed a volatile January with the S&P 500 falling into correction territory, down at least 10% from its recent high, then rallying 4% in the last week of the month. The S&P 500 returned -5.3%, which is the worst monthly return since March of 2020. The Nasdaq also saw its worst decline since March 2020 finishing -8.98% for the month.2
Still, many strategists on Wall Street are reminding investors that corrections are normal in bull markets. Since 1950, there have been 33 S&P 500 corrections of 10% or more since 1950, and the median episode has lasted about five months, according to Goldman Sachs.3
Finally, Federal Reserve Chairman, Jerome Powell, signaled to investors that the central bank will wind down its bond purchases in Q1 and will move to raise interest rates at the next FOMC meeting in March.
If January is truly a barometer for the year, we appear to be headed for an interesting as well as volatile year in the markets and the overall economy, but as all theories work, time will prove the outcome if as goes January, so goes the year.
Tyler Foster
Director of Wealth Advisory
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
1. https://lplresearch.com/2021/02/01/as-goes-january-so-goes-the-year/
2. https://www.cnbc.com/2022/01/30/stock-market-futures-open-to-close-news.html
3. https://www.marketwatch.com/story/market-corrections-are-good-buying-opportunities-says-goldman-sachs-but-only-when-this-happens-11643622621
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