The thought 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. The truth is, it is likely one of the extra dependable of the market saws, having been proper nearly 9 occasions out of 10 since 1950. Final 12 months, January noticed positive factors of seven.9 p.c for the S&P 500 (the most effective January since 1987), predicting an excellent 12 months. Certainly, that’s simply what we received.
The truth is, 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 powerful 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 based on the calendar, proper over a barely longer interval.
Wall Road “Knowledge”?
I’m usually skeptical of this sort of Wall Road knowledge, however right here there may be no less than a believable basis. January is when buyers largely reposition their portfolios after year-end, when positive factors and efficiency for the prior 12 months are booked. So, the market outcomes actually do mirror 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 into a self-fulfilling prophecy, which is why this indicator is value 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 international 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. If you happen to consider 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 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 straight (China and most of Southeast Asia), and it’s beginning to gradual the developed markets by means of provide chain results. The U.S., with a comparatively small a part of its provide chains affected to this point 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 should due to this fact be much less dependable than prior to now.
The Actual Takeaway
What we will take away, nevertheless, is that within the face of an surprising 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 quicker development if the outbreak subsides. Both method, the U.S. appears to be like to be much less uncovered to dangers and higher positioned to experience them out after 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 achieve.
Editor’s Notice: The authentic model of this text appeared on the Unbiased Market Observer.
