- While the S&P 500 fell 5.3% in January, that doesn’t necessarily mean stocks will fall for 2022, LPL Financial said.
- This is because the so-called January Barometer which suggests “As January goes, so goes the year”, is broken.
- According to LPL, nine of the last 10 times stocks fell in January, stocks rose in the following 11 months.
January marked a volatile and losing start for the U.S. stock market in 2022, but the S&P 500’s monthly slump doesn’t mean the broad index will end up in the red for the year, LPL Financial said Tuesday.
The S&P 500 hit an all-time high of 4,818.62 on Jan. 4 as investors returned from the Christmas holidays, building on its 70 record highs in 2021 that contributed to its annual gain of about 27%.
But with the
Federal Reserve
making its belligerent pivot on monetary policy in the face of high inflation, investors quickly began to cut stock valuations, led by a nearly 10% decline in consumer discretionary stocks in January. Information technology stocks, meanwhile, fell more than 7%.
The S&P 500 ended January down 5.3%, which LPL Financial said in a note on Tuesday was the worst first month of the year since 2009.
“There’s an old adage on Wall Street that suggests, ‘As January goes, so goes the year,’ wrote Ryan Detrick, LPL’s chief market strategist. The adage is widely known as the Barometer of January and was first discussed in 1972 by Yale Hirsh of the Stock Trader’s Almanac – “and it has an impressive track record,” Detrick said.
So should investors be worried about 2022 given January’s bad patch?
Detrick said when the S&P 500 ended positive in January, the index rose 11.9% on average over the next 11 months and higher 86% of the time. But when January was a loser, stocks rose just 2.7% on average over the rest of the year and rose 62% of the time.
“It’s not all bad news, because lately the January barometer hasn’t worked,” he said. “In fact, 9 of the last 10 times stocks have gone down in January, the last 11 months have been higher, with huge gains in there.”
The most recent example dates back to January 2021, when the S&P 500 closed down 1.1% in January, but returned 28.3% over the following 11 months. The most notable year on Detrick’s chart in his note was 2008, when stocks fell 6.1% in January and then 34.5% over the rest of the year. Investors were at the heart of the global financial crisis that year, and that marked the collapse of financial services company Lehman Brothers.
This month could also prove weak, with Detrick saying that after declines of 5% or more in January, February has been lower six of the last seven times. “Longer term, performance over the past 11 months has also been quite subdued.”
While shares in January have fallen this year, the 4.4% rally in the last two days of the month was the best month-end rally since November 2011, Detrick said.
“We are encouraged by the big reversal in equities last week and believe equities are forming a significant bottom,” the strategist said. “But the truth is this year is going to be a lot more volatile than last year and investors better buckle up if the first month is any indication.”