Technically Speaking: 2021 Investor Resolutions & January Stats

With 2021 already off to a good start, with the market up almost 2% in January, such is an excellent time to review our “investor resolutions.”

So Goes January

There is an abundance of “Wall Street Axioms” surrounding the first month of the New Year as investors anxiously try and predict what is in store for the next twelve months. You are likely familiar with the “Superbowl Indicator” to “So Goes The First 5-days. So Goes The Month.”

Considering that trying to predict the markets more than just a few days in advance is mostly an exercise in “folly,” it is nonetheless a traditional ritual as the old year passes into the new. While Wall Street espouses their always overly optimistic projections of year-end returns, reality has often tended to be somewhat different.

However, from an investment management perspective, we can look at some of the statistical evidence for January to gain insight into performance tendencies looking ahead. From this analysis, we can potentially gain some respect for the risks that might lay ahead.

According to StockTrader’s Almanac, the direction of January’s trading (gain/loss for the month) has predicted the course of the rest of the year 75% of the time. Starting from a broad historical perspective, the chart below shows the January performance going back to 1900.

January Investor Resolutions, Technically Speaking: 2021 Investor Resolutions & January Stats

Furthermore, twelve of the last sixteen presidential election years followed January’s direction. Speaking of Presidential election years, the first year of a new President statistically has the lowest average return rate with roughly a coin toss of being a positive year.

January Investor Resolutions, Technically Speaking: 2021 Investor Resolutions & January Stats

Digging In

The table and chart below show the statistics by month for the S&P 500. As you will notice, there are some significant outliers like August with a 50% one-month return. These anomalies occurred during the 1930s following the crash of 1929.

January Investor Resolutions, Technically Speaking: 2021 Investor Resolutions & January Stats

The critical point is that January tends to be one of the best return months of the year. Interestingly, the first week of January has already surpassed the historical average and median monthly returns.

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