Stocks got off to a nice start in 2021, until the late January selloff, as everyone got GameStop fever. Should bulls worry about what a down January might mean for the rest of 2021?
There’s an old adage on Wall Street that suggests, “As goes January, so goes the year.” This was first discussed in 1972 by Yale Hirsh of the Stock Trader’s Almanac, and it has an impressive track record. Simply put, when the first month of the year was green, it bodes well for the rest of the year (and vice versa). Given stocks closed red in January, how worried should investors be?
As shown below in the LPL Chart of the Day, the numbers confirm that when the S&P 500 has been green in January, the index has been up 11.9% on average over the rest of the year (final 11 months) and higher 86% of the time. However, when that first month was red, stocks rose only 1.7% on average over the final 11 months and were higher barely 60% of the time.
“A weak January could foretell of rough times ahead in 2021,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The good news is lately the trend has been broken, as stocks have done quite well after a weak January.” In fact, 8 of the past 9 times January saw stocks lower the final 11 months finished higher.
A closer look at those years above and it is clear that a weak January has led to more volatility than normal recently. 2015, 2016, and 2020 all saw significant upticks in volatility during the year, likely increasing the odds that 2021 will be rocky as well.
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