Market Overview

What The 'Strong January Playbook' Says About Where The Market Is Headed In December

What The 'Strong January Playbook' Says About Where The Market Is Headed In December

U.S. investors have enjoyed some big gains in 2019, but a lot can happen in the last month of the year. The SPDR S&P 500 ETF Trust (NYSE: SPY) is up 25.6% year to date, but one indicator suggests there could be even more upside ahead before 2020.

DataTrek Research co-founder Jessica Rabe recently took a look back at the beginning of 2019 to gain some insight on what the ending of the year could look like.

The S&P 500 gained 7.9% in January. There have only been eight other years since 1958 in which January returns were more than one standard deviation above the average January return of 1.2%, according to DataTrek. In seven of the eight years with strong January returns, the S&P 500 finished the year with at least a 23% gain. The lone exception was 1987 (+5.8% gain). The overall average annual return in these eight years is 26.6%, roughly in-line with the S&P 500’s 2019 gains year-to-date.

Looking Ahead

Given 2019 is on track to follow the “Strong January Playbook” trend of 23%-plus full-year gains, Rabe looked specifically at the month of December to see how the S&P 500 has historically closed those years.

She found that the S&P 500 averaged a 2.8% gain during those December months and traded higher seven out of eight years.

Looking ahead to 2020, DataTrek found the S&P 500 has averaged another 10% gain in the eight years following strong January, finishing higher on the year 60% of the time.

“Even with such a large annual gain this year, history shows the S&P can continue to rally next year, just likely by not as much,” Rabe said.

Benzinga’s Take

The historical data is encouraging and suggests there are no clear barriers to new market highs in December and beyond. However, eight years is an extremely small sample size, and past performance is not indicative of future returns.

Do you agree with this take? Email with your thoughts.

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