As we approach the New Year, let’s take a look at equity returns in January. Over the last 20 years, January has on average been a flat month for the S&P 500. Even though this suggests an approximately 50% likelihood that equities will be positive this January, some sectors have exhibited a seasonal tendency to outperform the S&P 500 in January, notably healthcare and information technology.
Since 1997, the S&P 500’s average price change for January has been -0.1%, with a best return of 6.1% and a worst return of -8.6%. One way to try to outperform this relatively flat seasonal performance early in the year may be to invest in sectors or industry groups within the S&P 500 that have historically outperformed the index in January. Comparing the price performance of an underlying sector or industry group to the broad-based index over a specific period can help identify the strongest seasonal performers compared with the overall market. However, performance is often driven by factors other than seasonality.
The sectors and industry groups that on average have outperformed the S&P 500 in January since 1997 are highlighted in green in the table below; those that underperformed the index are highlighted in red.
Since 1997, one of the S&P 500 sectors that has outperformed the S&P 500 Index consistently in January has been healthcare, outperforming by an average of 1.7%, with a high return of 11.5% and a low return of -11.3% over this 20-year time frame. Digging a little deeper, we note three industry groups within the healthcare sector that have displayed relative strength in January.
- The S&P 500 Healthcare Technology Industry Index has outperformed the S&P 500 Index, on average, by 3.7% in January, with a high of 10.5% and a low of -4.7%.
- The S&P 500 Life Sciences Industry Index has outperformed the S&P 500, on average, by 3.7% in January, with a high of 14.8% and a low of -6.5%.
- The S&P 500 Biotechnology Industry Index has outperformed the S&P 500 Index, on average, by 2.9% in January, with a high of 17.4% and a low of -9.1%.
In addition to healthcare potentially having a seasonal tailwind in January, the information technology sector also tends to outperform broad-based stocks during this time frame. Since 1997, the S&P 500 information technology sector has outperformed by an average of 1.9%, with a high of 14% and a low of -6.8%.
- We note the S&P 500 semiconductor and equipment industry group’s relative strength in January, which outperformed the equity benchmark, on average, by 3.7%, with a high of 19.8% and a low of -9.3%.
As we approach the New Year, seasonal patterns and data over the past 20 years suggest that equity performance in January may potentially be flat, but we can look to both the healthcare and information technology sectors as potential strong seasonal candidates for relative strength performance compared with broad-based stocks.
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
The economic forecasts set forth in the presentation may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial LLC.
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