There is no question: 2017 was a fantastic year for the stocks and the market in general. That trend should continue in January 2018 if history is any indication.
Since 1950, the first month of each New Year has seen an average gain of 0.8%. The market has been up 40 times, while it has been lower just 28. However, some of those down years did see larger-than-average losses for stocks. From 2014 through 2016, the S&P 500 fell quite a bit in January, down 3.43% in 2014, 3.1% in 2015 and 4.81% in 2016.
So while the odds of a positive January are good, what is even more likely is the fact that we’ll see a big move in just one direction this month. Since 2008, stocks have either shot right out of the gate in January or they have fallen by at least 3%. Therefore, the first month of the year has become a time when investors either cheer the gains or hibernate and wait for the indices to find some footing later on.
Luckily for us, 2018 has started off on a strong note, and if it’s any indication of what’s to come, it looks like January is setting us up for another big up year. The S&P 500 is up 1.5% through the first two trading days of the New Year and it is on pace to keep the 2017 rally alive.
Will Stocks Repeat the January Trend This Year?
I have been a bull throughout this entire bull market and I don’t expect my outlook to change in 2018. I can’t reassure you that stocks will shoot higher uninterrupted over the next 12 months, but I can tell you that a big gain one year does not necessarily result in a pullback the next.
In fact, history not only suggests that January will be a good month, but it also tells us that 2018 will be another strong year. The Dow Jones Industrial Average finished 2017 with a gain of at least 25% for the eleventh time since 1950. And of the last 10 times this has happened, the next year was positive in eight years.
Even more impressive is that the average gain during that following year was 12.6% — well ahead of the average 8.5% gain for all years combined.
I do anticipate some more volatility in 2018, but keep in mind that that is a necessary part of healthy market trading. Plus, it’s ultimately good news for our profit potential as we get to buy on dips and sell into rallies.
It’s no surprise that the skeptics are out as the bull market gets ready to enter its ninth year, but as of now, there is no reason to fight the strong positive trend in stocks. They’ve kicked off 2018 on a strong note, and I look forward to that momentum continuing through the rest of the year.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.