January marks a fresh start for Wall Street, a time for investors to reassess risks and put fresh cash to work. The first month of the year is also known for setting the trading tone and mood of the market for the full year. So, will January tell a bullish or bearish story for 2015?
There is an old saying on Wall Street: “As January goes, so goes the market.” The direction of the broad U.S. stock market has tracked January 77% of the time since 1950 — and “registered only seven major errors” — according to The Stock Trader’s Almanac. Last year, however, was an exception, with the Standard & Poor’s 500-stock index tumbling 3.6% in January before rebounding strongly and finishing the year up 11.4%. Gains in the first five days of January have led to full-year gains 85% of the time.
January’s predictive nature has been even more spot-on in pre-presidential election years, with the U.S. stock market’s full-year direction determined 87.5% of the time by how the market fares in January, according to Almanac editor Jeffrey Hirsch.
“Getting off to a good start is always important,” says Hirsch, especially this year when the Federal Reserve is expected to start hiking interest rates for the first time since 2006. Like 2014, January 2015 could see profit-taking after another good year, he adds.