INCLINE VILLAGE, Nev. - Stocks rose in January, which is a good sign for the rest of the year. Jay Kaeppel, author of Seasonal Stock Market Trends, reports that the average annualized return for the eleven months after a strong January is 11.8 percent. That's well above the 1.9 average annualized return after a down January.
January wasn't just an up month, it jumped an amazing 5.04 percent! What does such a strong advance mean from here on out? Wayne Whaley, author of Wayne Whaley Newsletter, found that since 1950 there were eighteen cases where the market advanced by at least four percent in January. In each case the market extended its gains through August, with an average gain of 9.7 percent.
Of closer interest is what typically happens in February after an exceptionally strong January. Most would except a down February because the market was "overbought" or went "too far, too fast." Historical results say otherwise, however. Of the eighteen cases when stocks rose four percent or more in January, the market continued to advance in February two-thirds of the time.
The most bullish statistic is what happens to the market for the three months after a strong January. Looking once again at the eighteen cases, the market returned 9.38 percent on average from February through April. That's nearly a year's historical return.
These are only statistics and they are based on a small sample size. Nevertheless, a good fundamental case can be made for higher prices and it is the case I've discussed before. Namely, there is no alternative to stocks for growth and fewer alternatives even for income.
Cash pays nothing. Treasury funds are losing value. Some preferred stocks are still attractive, but the list is getting smaller. Real estate? It's not a practical investment for most people. Commodities? Same thing. The lack of an alternative to stocks trumps all.
- David Vomund is an Incline Village-based fee-only money manager. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.