Does January Trading Data Point To 2023 Being The Year Of The Bull?

The stock market has had a much different feel in January 2023 versus January 2022. Investors are much more optimistic this month compared with a year ago, and most risk-on stocks are performing well, a sharp contrast to January 2022 trends.

January’s market performance probably augurs well for the balance of 2023, as a well-known stock market axiom is: “As goes January, so goes the year.”  Historical market trading data generally supports this notion, but the linkage has weakened over the last few years.

The figure below compares returns in January of a calendar year with the returns over the subsequent eleven months for the period 1926-2017. In the vast majority of those years, the full year return directionally mirrored the January performance. However, in the 2010’s, there were several instances where a negative January was followed by solid results in the remainder of the year.

January Returns Versus Subsequent Eleven-Month Returns of the S&P 500 Index, 1926-2017. Source: The Planning Center.

Return data for the most recent years, 2018-2022 and 2023 to date, are shown in greater detail in the below table.

S&P 500 Index Returns

YearJanuary of Calendar YearFull Calendar Year
2023 (A)5%??
(A) Through January 23, 2023.

The January barometer has proved accurate in only two of the last five years: 2019, when a robust January foretold extremely impressive returns for the balance of the year; and 2022, when weak January trading patterns held for most of 2022. The data for 2020 is probably inconclusive, as a January 2020 decline of 0.2% preceded a full-year return of more than 16%.

Investors may consider 2018 results as a cautionary data point. After rising about 6% in January, the S&P 500 finished the year down about 6%. Much of the downturn occurred in the last quarter of 2018 as investors became concerned about a trade war with China, a slowdown in economic growth, and fears that the Federal Reserve was raising interest rates too rapidly. The latter two issues could potentially become prominent at some point in 2023.

(The Fed raised interest rates four times in 2018, by 25 basis points each time in March, June, September and December. The Federal funds rate range closed the year at 2.25% to 2.50%. The Fed ultimately took back 75 basis points in 2019.)

In summary, the stock market’s marked movement higher in the first 3+ weeks of January has been a welcome change from a difficult 2022, but history — particularly recent history — tells us the positive January performance does not necessarily imply the market will post robust results over the final eleven months of 2023. 

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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