Is it the January Effect, or Is There More Pain In the Markets?

Published by Taylor Financial Group

Historically, when we have seen the market perform well in the first month of the year, we’ve also watched it perform well for the rest of the year.  In fact, from 1950 through 2017 (a period of 67 years), we experienced 27 years of the S&P 500 rising in January and February, with only one of those years having turned in a loss for the full year.  And that one year, 2011, the S&P 500 ended the year with a loss of only 0.04 points (0.0003%).  Even more significant than that one-year loss out of 27 years, is the 22 years of those when the Index ended the year with gains in the double-digits.  That’s 22 years of gains up more than 10% each time!  Bottom line – this is a solid track record.  So, why are we sharing this history with you?  Since we just saw a return of 5.6% in January 2018, it gives us reason to be optimistic for a positive 2018.

The facts become more intriguing when the first month of the year is up more than 5%.  According to research by LPL Financial, when this happens, the return over the next 11 months of the year actually get stronger.  Clearly, this could mean that 2018 will continue the bull market trend.

We’re certainly not complaining about this possibility!  But we do want to remind you that a good year does not necessarily mean there won’t be bumps in the road – and perhaps many of them.  As LPL Financial also pointed out, every time the S&P 500 was up more than 5% (since 1950) at the end of January, the average peak-to-through correction was 10.7%, and the smallest intra-year pullback was -4.4%.  So, we should still be prepared for some volatility, but remain hopeful for an overall good year.  Indeed, we are seeing some of this volatility already, with the dramatic pullback of the last week.

While we are looking forward to a good year, with some bumps along the way, we are always paying close attention to the markets and the economy.  You can rest assured that we consider all things when advising you and selecting investments for your portfolios.

As always, if you have any questions, give us a call today!


Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

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