Is January historically a good month for stocks?
The full story behind January's historical returns
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.
For decades, a popular theory has held that US stocks tend to rise more in January than in other months. The existence of this phenomenon, known as the January effect, once appeared to be undeniable as studies showed gains several times larger in January than in an average month.
According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.) During recessions, April's positive performances can be even more pronounced.
The typical January over the last 40 years delivered an average return of 0.7%, this compares with 0.3% over the last 30 years, a dip of 0.1% over the last 20 years, 0.3% over the last 10 years, and 1.8% over the last 5 years. For the most part, January is a good month, but it is clearly not as good as December.
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
January 2024 Market Summary
The Dow Jones Industrial Average rose 1.3%, the S&P 500 advanced 1.7%, and the NASDAQ added 1.0%. Large-caps fared better than Small-caps in January–the Russell 1000 index increased 1.4%, while the Russell 2000 dropped 3.9%. Growth outperformed value within both indices.
September is traditionally thought to be a down month. The September effect highlights historically weak returns during the ninth month of the year, which could be aided by institutional investors wrapping up their third-quarter positions.
A good start isn't uncommon for the S&P 500
In the previous 51 years, there have been 27 times when the index was up at least 1% in January. That's 53%, slightly more than half of the time, that the S&P starts the year in the green.
History shows, however, that February can be a difficult month for equities, especially in a presidential election year. Since 1928, February, on average, has delivered a negative 0.1% monthly return for the large-cap S&P 500 index SPX, the second worst month of a year on average.
What months are worse for stock market?
Worst Months: January, February, March, August, and September are weaker periods.
There is even some evidence to suggest that the tendency towards market gains in December is because many big institutional traders close their books for the year early, which enhances the influence of individual investors, who generally tend to be net buyers and less sensitive to any possible negative news or ...
The S&P 500 has historically averaged a 1.3% gain in December, according to Dow Jones Market Data going back to 1928.
What Is the 11am Rule in Trading? If a trending security makes a new high of day between 11:15-11:30 am EST, there's a 75% probability of closing within 1% of the HOD.
- KLA Corporation (NASDAQ:KLAC) Number of Q4 2023 Hedge Fund Shareholders: 55. ...
- General Electric Company (NYSE:GE) Number of Q4 2023 Hedge Fund Shareholders: 92. ...
- Lam Research Corporation (NASDAQ:LRCX) ...
- Eli Lilly and Company (NYSE:LLY) ...
- Netflix, Inc.
- Oracle Corporation (NYSE:ORCL) Year To Date Share Price Gain: 10.17% ...
- Broadcom Inc. (NASDAQ:AVGO) ...
- ServiceNow, Inc. (NYSE:NOW) ...
- Lam Research Corporation (NASDAQ:LRCX) Year To Date Share Price Gain: 11.98% ...
- Uber Technologies, Inc. (NYSE:UBER)
For most stock trades, settlement occurs two business days after the day the order executes, or T+2 (trade date plus two days). For example, if you were to execute an order on Monday, it would typically settle on Wednesday.
One of them is 1-2-3. Graphically it looks like a combination of three extremes, the second of which is a correctional one. In this case, in the conditions of the bullish market, point 3 is always below point 1. If the situation is controlled by bears, point 3, on the contrary, will be located above point 1.
If a stock opens close to the stop but not below it and trades down through the stop within the first 5 minutes of trade, then we use the “5 minute rule”. Again, we are not out of the position on the original stop, but rather will let the stock trade for a full 5 minutes (until 9:35am EST) before taking any action.
“The major culprit was housing costs, which rose 0.6% in January and contributed over two-thirds of overall inflation during the month. Even though high interest rates have dramatically cooled activity in the housing market, prices have not fallen because housing inventory is so scarce.”
Will stock bounce back in 2024?
For now at least, analysts are anticipating S&P 500 earnings growth will continue to accelerate in the first half of 2024. Analysts project S&P 500 earnings will grow 3.9% year-over-year in the first quarter and another 9% in the second quarter.
Stock markets got off to a hesitant start in 2024, but gradually found their way to the upside as the month progressed. Government bond yields actually started the year higher, but declined again slightly towards the end of the month.
Don't fear December: Stocks usually see year-end gains, especially before a presidential election year.
If you're looking to invest for your future -- five, 10, or 40 years from now -- now is as good a time as ever to buy stocks. Despite ongoing recession fears, it's important to remember the market is forward-looking. Stock values are based on future expected earnings.
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
