by Melissa R. Brown, CFA
The saying “As goes January, so goes the year,” generally attributed to Yale Hirsh of the Stock Trader’s Almanac, has generated much excitement very recently, as the US market’s return in January 2023 was not only positive, but it was among the highest 10% of monthly returns over the past 40 years. After a very tough 2022, investors are understandably looking for some hope that the year ahead will be better.
Melissa R. Brown
As Head of Applied Research, Melissa leads a seasoned team that provides unique insights into risk trends by analyzing the vast amount of data on market, index and portfolio risk maintained by Qontigo.
As quants, we prefer to see statistical proof rather than rely solely on received wisdom, so we did a simple test. We compared the January return for the Axioma United States Core Market Portfolio[1] each year since 1983 (as far back as our data goes). We found the following:
- Overall, the market moved in the same direction in the February–December period as it did in January 60% of the time, but in the opposite direction in the rest, giving a slight edge to the adage.
- There was a difference for up vs. down markets, however. The market rose in January in 25 of the 40 years in our test period. The market’s return for the rest of the year was positive in 20 of them, or 80% of the instances. That could bode well for 2023.
- In the 15 years the market fell in January, it continued the downward trend in just four (about 27% of the time). This is not very surprising, as the market does tend to rise over time.
- Overall, there is a slightly positive relationship between the return in January and that in the subsequent months, but it is weak.
- The biggest exception to the rule was in 1987. In that year, the market gained more than 13% in January but went on to fall more than 8% over the ensuing eleven months.
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Subscribe >In Figure 1, we have plotted each year since 1983 according to their January return (horizontal axis) and their rest-of-year return (vertical axis). A tight correlation between the two performances would be signaled by an ascending trend line from the chart’s bottom-left corner to the top-right corner.
Figure 1: January returns vs. rest-of-year returns
Of course, there is so much more that drives asset prices, and a good deal of uncertainty remains in the current environment, but perhaps investors can find a bit of comfort in knowing that should history repeat itself, a strong January indicates an 80% chance that the rest of the year will follow suit.
[1] On Dec. 30, 2022, the market portfolio comprised the 626 largest US companies. The portfolio is meant to be a broad representation of the underlying market.
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