January Bullishness on the Wane?


The end of December is nigh. Here’s a quick look at how the U.S. market has performed historically in January.

First the (misleading) numbers…

From this 30,000 foot view, January has solidly outperformed the average month, with almost twice the average and median return (at less volatility).

But averages can be misleading because they say nothing about how consistent an observation has been or whether it’s waxing or waning, so below I’ve assumed a trader was only long the S&P 500 in January (red) versus the average month (grey) each year since 1930.

[logarithmically-scaled, growth of $10,000]

The graph shows that January consistently outperformed the average month over the last 80+ years. But the graph also shows that that outperformance has waned more recently. Note the dip in the equity curve over the last decade or so.

The next graph makes this more clear. Below is the rolling 10-year average excess monthly return in January versus the average month. Positive values indicate January outperformed over that decade, and negative values indicate that it underperformed.

January has not impressed over the last decade.

Like all seasonality plays, this one has by no means been a sure thing and doesn’t by itself justify a trade, but because January bullishness has been on the wane, I’m calling the calendar month bias for January NEUTRAL.

Happy Trading,

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4 Responses to “January Bullishness on the Wane?”

  1. 1 capi2350

    In the past decade the market has often come into January very overheated with sentiment extreme. That doesn’t seem to be the case this year.

  2. 2 Adreno

    The January effect has been more pronounced in small companies – and it’s not a small difference. If you looked at the broader market instead of the S&P 500 I wonder how much different the graphs would look. Of course this is more relevant to investors than traders.

  1. 1 Sunday links: payment preferences | Abnormal Returns

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