The future is always blurry since it is impossible to know for sure what lies ahead of us. As an example, just check out the ancient Greek prophecies of the Oracle of Delphi or the medieval prophecies of Nostradamus.
Still, people keep trying to predict the future. They particularly want to know the fastest ways to become rich. That is why if you are an investor wishing to exploit stock market anomalies, you will certainly enjoy reading the Stock Trader’s Almanac and similar publications. For example, one of this almanac’s favorite statistics is the “January Trifecta” (see Reference 1 and 2 below).
It is based on the Santa Claus rally, the New Year’s Post-Holiday rally, and the January Barometer. The Santa Claus rally reflects the stock market’s direction in the last five trading days of the outgoing year and the first two trading days of the new year. The New Year’s Post-Holiday rally shows the market performance in the first five trading days of the new year. On the other hand, the January Barometer represents the market return during the first month of the new year.
Historically, when all the three gauges were up, the Standard & Poor’s 500 Index performance for the remainder of the year has risen 90% of the time with an average gain of 17.5%. When any of the indicators were down, the stock market performance for the remainder of the year were also reduced. When all the three gauges were down, the Standard & Poor’s 500 Index fell three out of eight years with an average loss of 3.6% (see the picture below).
In 2022, the Santa Claus rally has produced a positive return of +1.0%, while the New Year’s Post-Holiday rally has generated a negative return of -1.9%, and the January Barometer has been decidedly negative with a return of -5.3%. Thus, the statistical “stars” were predicting a rather difficult year ahead for the stock market in 2022. This prediction has turned out to be pretty accurate with the Standard & Poor’s 500 Index falling by -19.4% by the end of December.
In 2023, the Santa Claus rally has produced a positive return of +0.8%, while the New Year’s Post-Holiday rally has generated a positive return of +1.4%. Furthermore, the 2023 January Barometer has been overwhelmingly positive with a return of +6.2%. Thus, the 2023 stock market horoscope assured us that this year’s performance will be nothing short of stellar. And this is exactly what happened with the Standard & Poor’s index rising by +24.2%.
In 2024, the Santa Claus rally has produced a negative return of -0.9%, while the New Year’s Post-Holiday rally has generated just a slightly negative return of -0.1%. On the other hand, the 2024 January Barometer has been positive with a return of +1.6%. Thus, the 2024 stock market horoscope shows that this year’s performance is still likely to be positive. However, it is unlikely to repeat the 2023 outstanding performance.
But you should not overestimate the power of statistical stock market “stargazing”. On average (!), the statistical analysis of historical data may prove useful when being used over long periods of time without guaranteeing success in the short term: there is an exception to every rule.
I would also add that you should remember that the most important things in our life are health and time: “it is health that is real wealth” and “time is money” as they say.
References:
1. “Trio of Indicators Set to Give Wall Street Clues for 2022”, Jessica Menton, Bloomberg News, January 3, 2022.
2. “The Stock Market Could Post Monster Gains in 2024 if a ‘January Trifecta’ Is Realized. Here’s What Needs to Happen”, Matthew Fox, Business Insider, January 2, 2024.
