After a relatively slow start, the S&P 500 rallied during the back half of January and closed out the month with a gain of 1.6%. Buying pressure was relatively narrow, as declining shares on the index modestly outpaced advancers. Similar to 2023, a few mega-caps did most of the heavy lifting. Shares of NVIDIA (NVDA), Microsoft (MSFT), and Meta (META) contributed 80% of the S&P 500’s total return during the month.
From a historical perspective, a positive January has been a bullish sign for stocks. Yale Hirsch, creator of the Stock Trader’s Almanac, first discovered this seasonal pattern back in 1972, which he called the January Barometer and coined its popular tagline of ‘As goes January, so goes this year.’
As highlighted in the chart below, the popular Wall Street maxim has stood the test of time. Since 1950, the S&P 500 has posted an average annual return of 16.8% during years that included a positive January. Furthermore, the index generated positive returns during these years 89% of the time. In contrast, when the index traded lower in January, annual returns dropped to -1.7%, with only 50% of occurrences yielding positive results.
S&P 500 January Barometer (1950–2023)
Source: LPL Research, Bloomberg 02/01/24
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
Summary
U.S. equity markets have shrugged off a slow start to 2024 and rallied to record highs. The prospect for a soft landing, falling inflation, and a shift from rate hikes to rate cuts has helped offset an underwhelming fourth quarter earnings season thus far. Despite shorter-term overbought conditions, the technical backdrop for the broader market remains bullish, further supported by a positive January Barometer signal that suggests the path of least resistance for stocks remains higher.
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