The concept behind the outdated adage “as goes January, so goes the yr” is that this: if the market closes up in January, it will likely be yr; if the market closes down in January, it will likely be a foul yr. In truth, it is likely one of the extra dependable of the market saws, having been proper nearly 9 instances out of 10 since 1950. Final yr, January noticed beneficial properties of seven.9 % for the S&P 500 (the most effective January since 1987), predicting an excellent yr. Certainly, that’s simply what we obtained.
In truth, even when this indicator has missed, it has normally supplied some helpful perception into market efficiency in the course of the yr. In 2018, for instance, the January impact predicted a robust market. And it was sturdy—till we obtained the worst December since 1931 and the markets pulled again right into a loss, solely to get well instantly and resume the upward climb. Flawed based on 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 a minimum of a believable basis. January is when traders largely reposition their portfolios after year-end, when beneficial properties 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 develop into a self-fulfilling prophecy, which is why this indicator is value 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 development shares—is prone to proceed. Rising markets had been down by nearly 5 % in January, and international developed markets had been down by greater than 2 %. U.S. markets, against this, had been down by lower than 1 % for the Dow and by solely 4 bps for the S&P 500, and the Nasdaq was up by simply over 2 %. Should you consider on this indicator, then keep the course and deal with 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 traditional 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 straight (China and most of Southeast Asia), and it’s beginning to sluggish the developed markets by way of provide chain results. The U.S., with a comparatively small a part of its provide chains affected to date and with minimal direct results, has not been as uncovered—however that pattern 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 economic system or markets—and should subsequently be much less dependable than previously.
The Actual Takeaway
What we will take away, nevertheless, is that within the face of an sudden and probably important threat, the U.S. economic system and markets proceed to be fairly resilient. That resilience will assist if the outbreak will get worse, and it’ll level to quicker development if the outbreak subsides. Both approach, the U.S. appears to be much less uncovered to dangers and higher positioned to trip 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 major pullback right here within the U.S. over 2020, with the prospect of better-than-expected development and returns. And this isn’t a foul conclusion to succeed in.
Editor’s Observe: The unique model of this text appeared on the Unbiased Market Observer.