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

Post a Comment

Popular posts from this blog

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more

Sound Advice: October 8, 2025

How many investors have outperformed the stock market over the last 20 years? Very few investors have outperformed the stock market over the past 20 years.   Data shows that only about 6% to 8% of actively managed equity funds in the U.S. beat the market over this period, with the vast majority—over 90%—underperforming the S&P 500 or equivalent broad indexes. Percentage of Investors Beating the Market Only 8% of equity funds investing in large companies managed to outperform the market over a recent 20-year span. About 94% of all domestic funds underperformed the S&P 1500 Composite Index from 2005-2024. Over shorter timeframes (5-10 years), typically fewer than 15-20% of fund managers beat the S&P 500, and performance persistence is rare. Why It Is Rare The S&P 500’s high returns have proven immensely difficult to beat, especially as indexing has become popular and markets have ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more