Looking at February returns after both a positive and negative January
Subscribers to Chart of the Week received this commentary on Sunday, January 28.
After logging a sizable 24.2% annual gain in 2023 – most of which occurred in the final two months — the S&P 500 Index (SPX) seemed poised to start 2024 off on a high note, not dissimilar to the January 2023 pop of 6.2%. Despite stumbling at the starting block with a 1.5% loss in the first week of 2024, the SPX has resumed its bullish trajectory and is now eyeing a 2.6% gain for the month as we head into the last week of January trading. This past week ushered the SPX to a fresh round of back-to-back record closes, after fourth-quarter gross domestic product (GDP) data came in stronger than expected. To further soothe the Fed fatigue, the core personal consumption expenditures (PCE) price index fell 5.7% year-over-year, which, combined with upbeat GDP data, heightens the likelihood of an interest rate cut from the Federal Reserve in March.
While this year’s January surge of just under 3% is less than half the gains the index made in January 2023, a fast start to the year is a historic sentiment gauge, one that becomes a popular tool for traders just after a fresh calendar turn. The January Barometer posits that the performance of stocks in January can predict how the rest of the year will turn out. Whether the beginning of the year creates some sort of momentum for the stock market or perhaps it’s just randomness, the tendency has been observed.
It doesn’t take much to tie together the impressive success over the past 12 months to the S&P 500’s admirable 6% January 2023 surge. For this year, Schaeffer’s Senior Quantitative Analyst Rocky White pulled a fresh batch of data covering February to December returns for the S&P 500 Index since 1950 (a year the benchmark was positive for January).
The first table looks at just February returns after both a positive and negative January. The SPX began 44 of the past 74 years in the black for the first month, which eventually lead to an average Feb return of 0.60%, with 67% of these returns positive. In comparison, a negative January only brough in an average return of -1.08%, with 40% of these returns positive.
From a broader vantage point, the S&P 500 saw an average February to December return of 12%, with 86% of these returns positive. In comparison, a negative January only brought in an average return of 2.1%, with 60% of these returns in the black. In other words, what history tells us is clear; while February tends to underwhelm in terms of performance on either side of the aisle, the remainder of the year will likely not disappoint. With all signs pointing to a burgeoning economy, barometer such as these are good news for bulls should they want to continue to ride the wave of success that has swept Wall Street of late.