Skip to main content

Sound Advice: January 6, 2021

 Does January predict the full year?

One of the well-known Wall Street tales is that whatever happens in January is likely to be a good indication of how the rest of the year will be.  In the interest of getting a better understanding of the probabilities, I studied the returns of the Standard & Poor's 500 for the last 50 years.  The results of that study give some assurance that January may point the direction for the months that follow, but the early going is by no means a guarantee of what's to come.

Let's start with the reality that over extended periods of time two out of three years will show positive returns.  So when we look at the span from 1968 to 2017, we learn that (after excluding years that showed gains or losses less than 2%), exactly two out of three years registered significant gains.  That was as expected.

More interesting is the fact that in the years when the January number was positive, three quarters of the time the full-year result was also positive.  In four of the years with an up result for January, the direction over the remainder of the year was down.

At this point, one is tempted to buy in to the reliability of the January indicator.  I suggest that investors take that thought with a grain of salt.  What muddies the waters were the findings of the last 10 years, a decade when January's net pointed the wrong direction four times, most recently in 2016 and 2014.


Beyond the note that may be struck in the opening stanza, there are several realities ahead.
  One is that it's quite likely that the new year will bring with it even more volatility than we've recently experienced.  And don’t forget that in almost every year, there has been an interim correction of 10% or so sometime along the way.

This year’s picture is even cloudier.  One has to wonder what lies ahead for the incoming presidential administration, especially so in the wake of what has been continuing post-election chaos.  Will the increasing level of partisanship and rancor lead to a further Congressional stalemate or at some point might we expect that divisiveness will give way to a time when legislators begin to work together?

The answer to that question will be critical to efforts to muzzle the pandemic, address the impact of climate change and focus on grossly overdue infrastructure programs as well as improving education and opportunity universally, not just for a favored few.

Until the focus becomes clearer, uncertainty will linger.  For investors, uncertainty is not a promising vision.

Any questions, please contact me at nrwayne@soundasset.com

Comments

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens

Sound Advice: December 6, 2023

Some Suggested Financial Adjustments for Retirees Financial adjustments for retirees are crucial to ensure a comfortable and secure retirement. Here are some worthwhile financial adjustments and considerations for retirees: 1.      Create a Budget: Establish a realistic budget based on your retirement income and expenses. Categorize your spending and prioritize essential expenses such as housing, healthcare, and groceries. 2.      Emergency Fund: Maintain an emergency fund to cover unexpected expenses. Aim for at least three to six months' worth of living expenses. 3.      Healthcare Costs: Be sure to fully understand your healthcare coverage and consider supplemental insurance plans to cover gaps in Medicare. Account for potential long-term care expenses as well. 4.      Minimize Debt: Aim to pay off high-interest debt before retiring. This can significantly reduce financial stress and free up more of your retirement income. 5.      Investment Diversification: Div