New Year’s evolutions

  • January’s historical strength has ebbed over the past 20 years
  • January has been a coin toss for the S&P 500 since 1999
  • Swing traders: Market has rarely gone straight up or down in January

It’s (almost) the New Year—new resolutions, new goals, renewed enthusiasm…and all that other stuff.

January has a popular reputation for stock market bullishness, possibly because of the general optimism associated with hitting the “reset” button at the start of a year, along with the supposed bump from investors re-buying stocks they had to sell for tax purposes by the end of December.

For a New Year’s reality check, take a look at the S&P 500’s (SPX) January returns since 1960:

Chart 1: S&P 500 January returns, 1961–2018. 10 up, 10 down since 1999.

Source (data): Power E*TRADE

Bottom line: January has been an up month more than a down month over the past six decades, but it’s been much more of a mixed bag over the most recent 20 years:

● Since 1960, the SPX has posted a gain in 37 out of 60 Januaries. That 62% win rate lands it at fourth place among all months of the year.

●Since 2000, though, the SPX has had a positive January return only half the time, and the average decline for the losing Januaries (-4.2%) was bigger than the average gain for the winners (+3.6%).1 Most of the sub-par January performance occurred in a couple of three-year periods: 2008–2010 and 2014–2016.

The chart below provides a snapshot of how Januaries have tended to unfold over the past 60 years. It shows profiles of the SPX’s January day-by-day performance (i.e., the median cumulative return as the month progresses, measured from the last trading day of December). The green line is 1960–1999 and the red line is 2000–2019:

Chart 2: S&P 500 January daily return profile. Rally, pause (dip), rally.

Source (data): Power E*TRADE

This chart again highlights January’s reduced bullishness over the past 20 years. From 1960–1999 the profile consisted of a rally in the first half of the month, followed by a pullback, followed by an end-of-month upturn. By contrast, from 2000–2019 had a smaller start-of-the-month rally and then tended to trend lower over the next couple of weeks before turning up in the final three days of the month.

Again, though, the last two Januaries didn’t adhere to either pattern, as the SPX started out of the gates to the upside and never really looked back.

Savvy traders don’t reflexively bank on any single pattern or tendency, but if the first month of the year appears to be progressing along the lines of its longer-term historical averages, short-term players may find there’s more to January than a simple “New Year’s rally,” if one takes place at all.


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1 Reflects S&P 500 closing price data from 12/31/59–1/31/19. Supporting document available upon request.

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