The concept behind the outdated adage “as goes January, so goes the 12 months” is that this: if the market closes up in January, will probably be a superb 12 months; if the market closes down in January, will probably be a foul 12 months. In actual fact, it is among the extra dependable of the market saws, having been proper nearly 9 occasions out of 10 since 1950. Final 12 months, January noticed positive aspects 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 received.
In actual fact, even when this indicator has missed, it has often 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 received 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 in line with the calendar, proper over a barely longer interval.
Wall Road “Knowledge”?
I’m typically skeptical of this type of Wall Road knowledge, however right here there’s at the least a believable basis. January is when buyers largely reposition their portfolios after year-end, when positive aspects and efficiency for the prior 12 months are booked. So, the market outcomes actually do replicate how buyers, as a gaggle, are seeing the approaching 12 months. As investing outcomes are decided in vital half by investor expectations, January can change into a self-fulfilling prophecy, which is why this indicator is price taking a look at.
Wanting Forward
So, what does this indicator imply for this 12 months? First, U.S. outperformance—and the outperformance of tech and development shares—is more likely to proceed. Rising markets had been down by nearly 5 p.c in January, and overseas developed markets had been down by greater than 2 p.c. U.S. markets, against this, had 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. In case you imagine 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 basic 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 instantly (China and most of Southeast Asia), and it’s beginning to gradual the developed markets by way of 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 pattern won’t proceed.
In different phrases, what the January impact is telling us this time probably has far more to do with the specifics of the viral outbreak than with the worldwide economic system or markets—and should due to this fact be much less dependable than prior to now.
The Actual Takeaway
What we will take away, nonetheless, is that within the face of an sudden and probably vital danger, 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 manner, the U.S. seems to be much less uncovered to dangers and higher positioned to trip them out once they do occur.
Which, if you consider it, factors to the identical conclusion because the January impact would. Count on volatility, however not a big 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 Word: The unique model of this text appeared on the Impartial Market Observer.
