January has Spoken

History offers the investor reliable assistance to navigate the counterintuitive stock market, an enterprise adequately equipped to dispense the maximum amount of pain on the largest number of investors possible. Mark Twain observed that “History doesn’t repeat, but it often rhymes”, and from a world operating under the principle that “What has been is what will be, and there is nothing new under the sun” (Ecclesiastes 1:9). This principle was not lost on January, which has a history of accurately predicting the behavior of the stock market for the remainder of the year, but proceed with caution, for there is a greater principle at work which renders great suffering to non-observing investors. Let’s first consider January’s message:

• Over the past 74 years, stocks, as measured by the S&P500, have appreciated 11.4% over the remainder of the year following a positive January, while all 11-month periods averaged 6.9%. Stocks also rose 86% of the time following a positive January, and only 76% for all periods.
• Of the eleven times since 1950 a positive January followed a 20%+ return year (like 2023), the average remaining 11-month return was 14.8%, and stocks rose 100% of the time (vs. 6.9% and a 76% rise rate for all periods).
• Newton proved, “A body in motion tends to stay in motion”, and the stock market, in a new bull market following the bear market low in October, 2022, rose another 1.6% in January and set a new all-time high.1

An investor can get excited adding to January’s impressive record the fact election years have enjoyed a very bullish history of their own, and the fact Fed policy (2024 rate cuts) is now favorable to the stock market, but remember Warren Buffet said, “an investor’s emotions are the primary enemy”! More importantly, observe an even greater principle: there are exceptions to principles. Exceptions do not invalidate principles, but they do radically alter the outcome in instances. King Solomon put it this way, “Give a portion to seven, or even to eight, for you know not what disaster may happen on earth” (Ecclesiastes 11:2).

The stock market is a brute that routinely destroys unwary investors. Be intimately familiar with your investment objective and risk tolerance level, and be sure your investments reflect both at all times. Stay diversified. Practice position sizing. Have an exit strategy and honor it. Be bullish, but remain vigilant.

Think about it, Shaun.

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1 Stansberry Research, “Review of Market Extremes”, Brett Eversole, February 7, 2024

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The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets.?