Why a Bad January Doesn’t Mean a Bad Year for Stocks

Number of the Day: The most relevant or interesting figure in personal finance

9

That's how many times a bad January was followed by a much better rest of the year for the S&P 500, according to an analysis of the last 10 times the benchmark stock index lost ground in January.

The S&P 500 dropped 5.3% in January, the worst start to the year since 2009. But don’t be too discouraged, at least not yet, said broker-dealer LPL Financial. The firm’s research shows that in all but one of the 10 years the S&P 500 ended January in the red between 2001 and 2021, it finished the next 11 months higher, and the average gain was 13.1%.

The S&P 500 started this year with a bang, closing at an all-time high on Jan. 3 even after hitting record after record for most of 2021 as the economy continued to rebound from pandemic-era threats and corporate profits soared. But things soon headed south, mainly because of expectations that interest rates would be on the rise this year and also because of worries about the omicron variant of COVID-19. The index dipped briefly into “correction” territory (a drop of at least 10%) on Jan. 27, but only during intraday trading–it never closed that low, and it rallied the last two days of the month.

So what are investors to make of the historical performance of the S&P 500 in January and in the months following?

“The truth is this is likely more random than anything,” said Ryan Detrick, LPL Financial chief market strategist, in an email. “It is fun to talk about, but to base a full year on one month isn’t wise investing. We do think this year stocks will likely rally the final 11 months, so it’ll follow recent history.”

He added that we are in a mid-term election year, which tends to cause swings in the market. The Federal Reserve will likely be raising interest rates, and the economy may be slowing. “It all means likely higher volatility. We sure have seen that so far this year and expect it to continue.”

Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com.

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  1. LPL Research. “What a Big Down Month for Stocks in January Could Mean.”

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