The thought behind the previous adage “as goes January, so goes the yr” is that this: if the market closes up in January, it will likely be a very good yr; if the market closes down in January, it will likely be a foul yr. Actually, it is among the extra dependable of the market saws, having been proper virtually 9 occasions out of 10 since 1950. Final yr, January noticed positive aspects of seven.9 p.c for the S&P 500 (the perfect January since 1987), predicting an excellent yr. Certainly, that’s simply what we bought.
Actually, even when this indicator has missed, it has normally offered some helpful perception into market efficiency through the yr. In 2018, for instance, the January impact predicted a robust market. And it was sturdy—till we bought the worst December since 1931 and the markets pulled again right into a loss, solely to recuperate instantly and resume the upward climb. Flawed in response to the calendar, proper over a barely longer interval.
Wall Road “Knowledge”?
I’m typically skeptical of this sort of Wall Road knowledge, however right here there’s no less than a believable basis. January is when traders largely reposition their portfolios after year-end, when positive aspects and efficiency for the prior yr are booked. So, the market outcomes actually do mirror how traders, as a gaggle, are seeing the approaching yr. As investing outcomes are decided in important half by investor expectations, January can grow to be a self-fulfilling prophecy, which is why this indicator is price taking a look at.
Trying Forward
So, what does this indicator imply for this yr? First, U.S. outperformance—and the outperformance of tech and progress shares—is prone to proceed. Rising markets had been down by virtually 5 p.c in January, and international developed markets had been down by greater than 2 p.c. U.S. markets, in contrast, had been down by lower than 1 p.c for the Dow and by solely 4 bps for the S&P 500, and the Nasdaq was up by simply over 2 p.c. When you imagine on this indicator, then keep the course and concentrate on U.S. tech, as that’s what will outperform in 2020.
The issue with that line of considering is that what drove this month’s outcomes was a basic outlier occasion: the coronavirus. This virus, or extra precisely the measures taken by governments to regulate its unfold, has considerably slowed the economies of a number of rising markets instantly (China and most of Southeast Asia), and it’s beginning to gradual the developed markets by way of provide chain results. The U.S., with a comparatively small a part of its provide chains affected up to now and with minimal direct results, has not been as uncovered—however that development may not proceed.
In different phrases, what the January impact is telling us this time probably has way more to do with the specifics of the viral outbreak than with the worldwide financial system or markets—and should subsequently be much less dependable than prior to now.
The Actual Takeaway
What we are able to take away, nonetheless, is that within the face of an sudden and probably important danger, the U.S. financial system and markets proceed to be fairly resilient. That resilience will assist if the outbreak will get worse, and it’ll level to quicker progress if the outbreak subsides. Both method, the U.S. seems to be to be much less uncovered to dangers and higher positioned to journey them out once they do occur.
Which, if you concentrate on it, factors to the identical conclusion because the January impact would. Count on volatility, however not a big pullback right here within the U.S. over 2020, with the prospect of better-than-expected progress and returns. And this isn’t a foul conclusion to succeed in.
Editor’s Be aware: The authentic model of this text appeared on the Unbiased Market Observer.
