First let’s note that January finished with the S&P 500 Index* up by 5.64% (FastTrack Data). By any measure, that’s one terrific month. Of interest, according to Yale Hirsch (Publisher of the ‘Stock Trader’s Almanac’) the January Barometer was born in 1933. The ‘Lame Duck’ Amendment to the Constitution changed the political calendar and the January Barometer has been quite accurate since that time.

Down years (years in which January market returns are less than zero) have tended to be warnings of trouble ahead, in the economic, political, or military arenas.

On the other hand, there are three measurements that statisticians watch in January. They are the ‘first five trading days’, the ‘last 5 trading days’, and the whole month of January, known as the ‘January Effect’. For 2018 the first five trading days gave us a gain of 2.65% (on the S&P 500 Index*), the last five trading days gave us -0.45%, and the entire month of January gave us a +5.64%.

According to the Stock Trader’s Almanac, in a year where 2 of the 3 indicators are positive the year usually does well or very well, and when only 1 or 0 of the indicators are positive the years ‘generally stink’. We have 2 of 3 positive for 2018. It’s interesting to look at statistics, but then markets tend to be up in years when people eat more ice cream also. My take – cross your fingers, have a look at the booming economy (a more reasonable indicator in my mind) and eat more ice cream.  Here are a few more stats re January measurements:

Relevant January Barometer Stats:

  • When the S&P 500 SPX records a gain in January, it has recorded a gain for the full year 90% of the time (37 out of 41).
  • The average return for years starting with a positive January is +16.9% for the year.
  • When the S&P 500 is down in the month of January, it has finished down for the full calendar year 52% of the time (14 out of 27).
  • The average return for years starting with a negative January is -2.8%.
  • The barometer has been “right” about 75% of the time (going back to 1950).
  • There have only been 9 “really wrong” years in which the SPX has logged a gain or loss in excess of 5% in the opposite direction of January’s return.

Market Minute 2/2/2018 – The View From Friday Morning 

Some actual measurable data (Source: Herb Morgan Letters) appears to be pretty strong.  Fourth quarter GDP (Gross Domestic Product) grew 2.6% following a +3.2% in Q3. Consumer spending rose 3.8% and durable spending gained 14.2%. Nonresidential fixed investment grew 6.8%. These are very good numbers. They tend to indicate the current market environment is good. In addition, it is earnings season when the S&P 500 companies report their last quarter earnings. Results so far – 103 of 133 companies (77%) have beaten their estimates, 12 of 133 (9%) exactly hit their estimates, and only 18 companies have missed on earnings (and most of those missed by 2 cents or less!) Things look good from here. 

Let’s enjoy it!

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700

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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.