When stocks bounce at the beginning of the year, history shows the market is more often up than down at year-end.
Therefore, this year’s early January performance could be a good omen.
Stocks finished Tuesday with a gain, with the S&P 500 up 2.6 percent at 2,574, in the first five days of the year. Stock Trader’s Almanac has studied the “first five days” phenomena going back to 1950 and finds that when stocks finish that period higher, the S&P 500 has been positive 82 percent of the time at year-end with an average gain of 13.3 percent.
“Positive investor and trader behavior at the beginning of the year shows that there are good economic and market readings out there,” said Jeff Hirsch, the editor-in-chief of Stock Trader’s Almanac.
A solid first five days is a good start to the month of January, which also is its own market barometer or performance predictor. A higher January should mean a higher year, and that’s the thinking behind the Wall Street saying: “So goes January, so goes the year.”
Hirsch said the market has even better odds of doing well if January is positive, the first five days are higher and there was a Santa rally in the period that includes the last five trading days of the prior year and first two of the new year. Last month, the Santa rally resulted in a 1.3 percent gain in the S&P 500.