What January’s Activity Means for the Rest of the Year

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If the market closes higher at the end of January compared to the beginning, nearly 70% of the time, the year will also end above January’s gains. That is far above the normal edge the stock market has for positive year-end gains.

Person on the phone points at charts on a computer screen.

Source: Shutterstock

However, if the major indices lose ground in January, the potential for the rest of the year to be positive reverts back to its normal 55%. So, a bearish January doesn’t make it more likely that the market will fall the rest of the year, but a bullish one makes it much more likely that it will rise.

This phenomenon is called the “January Barometer” and unfortunately, unless the market stages an unprecedented recovery today, it means the outlook is less positive than we would like.

However, don’t give up hope. Last year’s January Barometer was also negative, but the S&P 500 rallied 28% from the beginning of February to the end of the year anyway.

There are already some early signs that a comeback like that could make things more interesting in February…

The market broke a three-week losing streak, thanks to the rally on Friday. The profit reports released by Visa (NYSE:V) and Apple Inc. (NASDAQ:AAPL) were the key drivers of it, but the good news applied to the entire market.

  • In AAPL’s report, we can surmise that supply chain constraints are starting to ebb, and consumer spending is still very strong. The company reported an all-time record quarter for sales after holiday demand exceeded expectations, which is a good sign for the economy and inflation in 2022.
  • Visa’s report confirmed that consumer spending was still very high, and travel spending was much better than expected. This points towards an economy that is still doing well despite some of the issues related to inflation, rising interest rates, and the pandemic.

What’s Coming Up After January?

This next week is another big one for earnings reports; each of the major sectors of the S&P 500 tends to clump together when reporting earnings. We get the big banks first, tech and some industrials next, and then retail companies start pouring in about a month after the quarter has ended.

For example, investors are more interested in Google and Facebook’s parent companies — Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Meta Platforms (NASDAQ:FB) — as advertisers for retail companies and less interested in them as tech firms.

Alphabet and Meta Platforms will report on Tuesday and Wednesday afternoon, respectively. Based on what we have already learned from Visa, the news should be good. Consumer spending is a great leading indicator for advertising revenue. Because most of the U.S. economy is driven by consumption, good news from the two biggest online advertisers should improve investor sentiment in February.

Besides earnings, this is also a big week for economic reports — especially the labor report on Friday. Economists aren’t expecting a big report, but we have been saying for a while that jobs are likely to have been underreported at the end of 2021, so a surprise is possible as the Bureau of Labor Statistics (BLS) catches up to the real data.

In addition to the jobs and unemployment rate, the report also includes wage growth. Rising wages are good of course, but it also increases expectations for inflation and traders get worried about the Fed raising rates to fight inflation.

Based on the information we have available to us right now, we think the report will show positive job growth and wages rising faster than expected. Be on the lookout for volatility on Friday after that report because stocks might dip back into attractive values on a knee-jerk reaction to the wages data.

Assuming the data from both Alphabet and Meta Platforms are good, we think this is a good opportunity to jump back into tech and retail in a big way.

We still like Microsoft (NASDAQ:MSFT), which was on our watchlist last week.

MSFT has been a long-time favorite in our elite trading research service, Strategic Trader. Below, you’ll see we scored profits on MSFT on 10 different occasions over the last year, amounting to an average weighted gain of 5.58% per play — for an average holding time of only 19 days.

Now, a couple of percentage points per play might seem confusing — especially in a world where folks hope to garner 1,000% gains before the closing bell on Friday.

But remember the adage, “Slow and steady wins the race?”

Check out the annualized gains, and you’ll see what we mean…

To boot, these Microsoft plays make only a fraction of our recommendations at Strategic Trader. On average, we recommend three trades per week — all of which have the same, if not better, profit potential as these Microsoft trades.

And as you can see from our running track record since Jan. 1, 2021, the “slow and steady” method pays off.

While our average return was 3.66% per play, our average annualized return (which considers how long we held the trade and how powerful each trade was in that timeframe) is incredible.

Click here to learn more about how we do it at Strategic Trader — and how you can gain access to our next MSFT plays.

Now, in addition to looking at Microsoft, semiconductors are also at very attractive values right now. There are risks, but with NVIDIA (NASDAQ:NVDA) selling out inventory in seconds and demand still high, we think this is an extraordinary value.

We have been excited about NVDA since we learned last week that they are giving up their bid to purchase U.K. chip designer Arm for $40 billion. Mergers are at best a zero-sum game and a huge distraction for management. Now that money can be used for buybacks, growth, and development.

The Bottom Line

Between another weekly flood of fourth-quarter earnings reports and the U.S. Labor Report on Friday, this will be a busy week for headline writers. We also expect to see a lot of comments about the negative performance in January setting the tone for the rest of the year.

However, keep your eye on the underlying fundamentals with us and you will be able to see through the static and pick up some good deals before share prices rise again.

One more thing before we go — our next YouTube video goes live tonight at 7:00 p.m. EST, where we’ll talk about…

  • Why traders kept buying the dip today, despite Fed worries…
  • Which hurdles stocks have to get over this week in order to hit new highs…
  • And more.

Click here to set a reminder for when it goes live. We’ll see you then.

Sincerely,

John Jagerson & Wade Hansen
Editors, Trading Opportunites


Article printed from InvestorPlace Media, https://investorplace.com/tradingopportunities/2022/01/what-januarys-activity-means-for-the-rest-of-the-year/.

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