Another Look At The January Barometer

In our latest Weekly Market Commentary, we noted:

Taking one last look at January, what happened was both rare and potentially very bullish. The S&P 500 was positive year to date each day of the month and did not close down more than 1% on any individual day. Since 1950*, that has happened only six other times; the results the next 11 months have been very strong, with the S&P 500 rising the rest of the year all six times with a median return of more than 10%. We do expect more volatility, but the data suggest that equity weakness should be considered as a potential buying opportunity.

So the question now is: does a good start to the year mean the next 11 months could be strong? As we noted on the blog two weeks ago, when the S&P 500 has been higher in January, then the next 11 months have been higher 88% of the time. This is known as the January Barometer, and it has had a very solid track record when January has been green. Today, we’ll take a slightly different look at this indicator.

As noted in the italicized paragraph above, the full month of January 2017 didn’t have a single 1% close lower, and not one day was negative on a year-to-date basis. It also finished the month positive. When those criteria have been met, the rest of the year (so the next 11 months) was higher all six times and saw an average return of more than 15%, with nearly an 11% median return. In other words, the great start to equities this year could be a sign of future strength.

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Per Ryan Detrick, Senior Market Strategist, “They say it isn’t where you start, but where you finish. That’s very true, but stock market history would say if you start off with an exceptionally solid January (like we saw in 2017), that could improve the odds that you might finish strong.”

IMPORTANT DISCLOSURES

* Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

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.

Stock investing involves risk including loss of principal.

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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