The concept behind the previous adage “as goes January, so goes the 12 months” is that this: if the market closes up in January, will probably be 12 months; if the market closes down in January, will probably be a foul 12 months. In truth, it is without doubt one of the extra dependable of the market saws, having been proper virtually 9 instances out of 10 since 1950. Final 12 months, January noticed features of seven.9 p.c for the S&P 500 (the perfect January since 1987), predicting an excellent 12 months. Certainly, that’s simply what we bought.
In truth, even when this indicator has missed, it has normally supplied some helpful perception into market efficiency in the course of the 12 months. In 2018, for instance, the January impact predicted a robust market. And it was sturdy—till we bought the worst December since 1931 and the markets pulled again right into a loss, solely to get better instantly and resume the upward climb. Incorrect in line with the calendar, proper over a barely longer interval.
Wall Avenue “Knowledge”?
I’m typically skeptical of this type of Wall Avenue knowledge, however right here there’s not less than a believable basis. January is when buyers largely reposition their portfolios after year-end, when features and efficiency for the prior 12 months are booked. So, the market outcomes actually do replicate how buyers, as a bunch, are seeing the approaching 12 months. As investing outcomes are decided in important half by investor expectations, January can turn out to be a self-fulfilling prophecy, which is why this indicator is value taking a look at.
So, what does this indicator imply for this 12 months? First, U.S. outperformance—and the outperformance of tech and progress shares—is more likely to proceed. Rising markets have been down by virtually 5 p.c in January, and overseas developed markets have been down by greater than 2 p.c. U.S. markets, in contrast, have been down by lower than 1 p.c for the Dow and by solely 4 bps for the S&P 500, and the Nasdaq was up by simply over 2 p.c. For those who imagine on this indicator, then keep the course and give attention to 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 manage its unfold, has considerably slowed the economies of a number of rising markets immediately (China and most of Southeast Asia), and it’s beginning to sluggish the developed markets by provide chain results. The U.S., with a comparatively small a part of its provide chains affected up to now and with minimal direct results, has not been as uncovered—however that development may not proceed.
In different phrases, what the January impact is telling us this time probably has rather more to do with the specifics of the viral outbreak than with the worldwide financial system or markets—and will due to this fact be much less dependable than previously.
The Actual Takeaway
What we are able to take away, nonetheless, is that within the face of an sudden and probably important threat, the U.S. financial system and markets proceed to be fairly resilient. That resilience will assist if the outbreak will get worse, and it’ll level to sooner progress if the outbreak subsides. Both means, the U.S. seems to be to be much less uncovered to dangers and higher positioned to journey them out after they do occur.
Which, if you consider it, factors to the identical conclusion because the January impact would. Anticipate volatility, however not a major pullback right here within the U.S. over 2020, with the prospect of better-than-expected progress and returns. And this isn’t a foul conclusion to succeed in.
Editor’s Be aware: The unique model of this text appeared on the Impartial Market Observer.