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How will stocks perform in 2021?
It’s hard to know until it happens. However, if you’re prepared to wait until the end of January, you’ll have a very reliable signal on the direction to go, according to a recent report by the Wall Street analyst firm CFRA.
When the S&P 500 rose in January, the market gained an average of 15.9% for the entire year, according to the CFRA report. When the market fell in January, the entire year saw an average loss of 2.2%. The data analyzed focused on market returns over the 47 years from 1945.
Reliable market indicator: as of January, so throughout the year
But the really important news is that when the market rallied in January, it then saw full-year gains almost nine-tenths (87%) of the time. While when the market fell in January, it only saw gains 52% of the time, according to the report.
There are other indicators that market professionals look at this time of year. But none are as reliable as the so-called January barometer. They include the “ first five days indicator, ” which shows that when the market is rising during the first five trading days of the year, the S&P 500 will show a gain 82% of the time, with an average rally. by 12.5%. When the first five days show a loss, the market shows gains 56% of the time.
Santa Claus talks but less reliable
Another indicator, known as the “Santa Claus Rally”, is also not as reliable as the January one. This metric looks at the returns of the last five trading days of the year plus the first two of the new year. When the S&P 500 sees gains for this period, the market is up all year 74% of the time, gaining an average of 10%.
When the market was down during the Santa Claus period (last five trading days plus first two), the S&P has only registered full year gains 28% of the time since 1945.
So what? Well, if you want to be sure it’s worth valuing stocks in 2021, take a look at what’s happening in January. If the market is rising during this time, stay invested. If the market shows a loss in January, reduce your exposure to equities. That way the odds will be in your favor.
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