The U.S. stock market is doing exactly what investors hoped it would to start the new year.
As the month draws to a close, the stock market is finishing the first month of 2023 with healthy gains despite widespread concern that the economy might be on the brink of a recession.
The stock market is on pace to hit the “January Indicator Trifecta,” which means all three seasonal indicators — the Santa Claus rally, the First Five Days Early Warning Systemand the January Barometer — will be logging S&P 500
SPX,
+1.46%
gains after the closing bell on Tuesday.
The Santa Claus rally, the First Five Days Early Warning System and the January Barometer are three seasonal indicators recorded by Yale Hirsch in his Stock Trader’s Almanac in 1972. They constitute a trifecta of seasonal indicators in January and can predict the market’s direction for the rest of the year.
See: What stock-market investors need to know about the ‘January Indicator Trifecta’
MarketWatch reported earlier this month that the S&P 500 gained 0.8% during the most recent Santa rally period which includes the final five trading days of December and the first two of January. The index was also higher in the first five trading days of the month, which theoretically points to continued bullishness for the remainder of 2023. The “January Barometer” or “as goes January, so goes the year”, means if the S&P 500 rises between Jan. 1 and Jan. 31, this may foretell positive returns for the next 11 months.
The large-cap index has risen 5.6% so far this year, heading for its best January since 2019, according to Dow Jones Market Data.
“The trifecta accomplished this month has historically led to some very strong returns,” wrote Adam Turnquist, chief technical strategist, and Jeffrey Buchbinder, chief equity strategist of LPL Financial, in a Monday note. “The S&P 500 has on average added 12.3% to a 4.6% January gain between February and December, bringing the average gain for these years to over 17%.”
Moreover, according to the Stock Trader’s Almanac, the bullish trifecta is even better when the previous year saw stocks in the red. The S&P 500 closed out a particularly painful 2022 for Wall Street with an approximately 20% decline, its worst annual showing since the financial crisis in 2008. That’s why a full-month January gain is all that remains to satisfy the even more bullish trifecta.
However, analysts have questioned whether the first month of the year could set the tone for how Wall Street will perform throughout 2023, as the Federal Reserve’s determination to lift interest rates further and a potential economic downturn remain headwinds for stocks.
The 20% slump for the S&P 500 in 2022 means that the January rally will not get the market back …….
