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A view from the floor of the New York Stock Exchange last week.
Michael M. Santiago/Getty Images
The stock market just closed out a positive January. Coming on the heels of last year’s bear market and combined with other recent moves, that’s a particularly positive signal.
It
S&P 500:
ended January with a gain of just over 6%. Fueling the rally was falling inflation, suggesting the Federal Reserve may be close to ending the string of interest rate hikes it has implemented to curb demand for goods and services.
The sooner the rate hike ends, the less damage can be expected to corporate profits and stock prices.
January rallies, on their own, are generally a good sign for the rest of the year. When the S&P 500 posts a monthly gain, it goes on to gain another 8.6%, on average, for the rest of the year, figures dating back to 1929 show, according to Ned Davis Research. It posted further gains in just over three-quarters of the January rally years.
This and last year’s other market movements also bode well for the rest of 2023. The S&P 500 also achieved the so-called trifecta. growth during the first five trading days of the new year, and the rally in January.
When the S&P 500 does all that after a year of visible bear market activity, defined as a drop of 20% or more from a high, the index’s average gain for the rest of the year is 13.9%. It has posted positive returns in nearly all 17 trailing bear market quarterly years.
These may seem like mere statistics, but there is some wisdom to be gleaned from them. Trifectas and January rallies are signs of confidence in the market. They show that ordinary people and professional money managers buy stocks at lower, more attractive prices because they hope or believe that the conditions for a bear market will improve.
Today, of course, that is the hope. Federal Reserve Chairman Jerome Powell is likely to reinforce or derail that when he takes the podium to discuss interest rates and the state of the economy after the central bank’s monetary policy committee meets on Wednesday.
Email Jacob Sonenshine at jacob.sonenshine@barrons.com
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