It’s Not Too Late to Position for January Rally!

Summary

•  Equities typically rally in January, then stall in February

Market Implications

• Hold SPY or QQQ ETFs in anticipation of broad-based market rally

Equities tend to open with a bang as the new year begins.

• During the past decade over the course of January, the S&P 500 has rallied an average of 1.3% after initially rallying during December.
• If we exclude the two down years of 2015 and 2016, when energy prices and the energy sector collapsed, the economy stalled, and 2021 (post-election euphoria), it has been up 1.8%.
• Equities then tend to plateau or fall by late January and February.
• An obvious explanation is an influx of new money in January. Then February brings new economic data, and investors repositioning as new economic and market themes emerge.
• Equities have bounced about this past month due to Fed plans to reduce QE and Omicron uncertainties but is now near the average late-year performance.

Some Possible Reasons Why Markets Might Not Rally Come January

• More hawkish statements from Fed officials and uncertainty about Fed policy
• A further jump in inflation
• Ongoing developments with Omicron
• Lack of progress on President Joe Biden’s Build Back Better legislative agenda
• Some unforeseen geopolitical development

And Reasons Why Markets May Rally

• The economy is robust, and unemployment continues to fall
• Strong holiday consumer spending
• Omicron stabilizes
• Earnings season gets off to strong start
• TINA – As long as the economy is in recovery mode There Is No Alternative

For our part, we expect historical patterns to reassert themselves in coming weeks. We recommend investors who anticipate even a modest broad-based rally hold equity ETFs SPY (S&P 500) or QQQ (tracks NASDAQ 100).

Over a 30-year career as a sell side analyst, John covered the structured finance and credit markets before serving as a corporate market strategist. In recent years, he has moved into a global strategist role.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)