Analysis: January’s stock market turnaround be a good omen for the year | CNN Business (2024)

Analysis: January’s stock market turnaround be a good omen for the year | CNN Business (1)

Traders work on the floor of the New York Stock Exchange during afternoon trading on January 17, 2024 in New York City. The stock market closed with a loss for the second straight day following the release of stronger-than-expected U.S. economic data from the Commerce Department.

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign upright here. You can listen to an audio version of the newsletter by clicking the same link.

New York (CNN) — US stocks rallied powerfully last week after a topsy-turvy start to the month. History indicates that if the market can cling to those gains, that could bode well for the rest of the year.

The major Wall Street indexes started the year by breaking a nine-week streak of gains that was powered by rising optimism the Federal Reserve will nail a soft landing, or bring down inflation without triggering mass unemployment.

But last week, all three major indexes turned positive for the year as tech stocks led the broader market higher. The benchmark S&P 500 and the Dow Jones Industrial Average indexes, which both notched record high closes on Friday, are up 1.2% and 1.1% this month, respectively. The Nasdaq Composite has added 1.7%.

One seasonal indicator suggest that’s a positive sign for the rally’s longevity. The January barometer, introduced in the Stock Trader’s Almanac, states that however stocks perform during January, their year-end performance will follow suit.

But a separate trend, the First Five Days of January indicator, suggests that the market’s performance during just the first five trading days of January is prophetic for the whole year. Narrowing the scope as such suggests investors could have reason to worry.

The Shanghai Financial Exchange Square in Shanghai, China, in December 2023. Costfoto/NurPhoto/Getty Images Related article Chinese stocks are having their worst start to a year since 2016

The S&P 500 fell 0.1% during the first five trading days of 2024. When the benchmark has fallen during this period, it has returned an average of 0.3% for the year and logged an annual gain about 54% of the time since 1950, according to LPL Financial.

In contrast, when the index has gained during the first five trading sessions, it has logged a 14.2% annual gain on average and risen for the year about 83% of the time.

With these two January market indicators at odds — at least, so far this month — should investors pay attention to them at all?

Before the Bell spoke with Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services, to discuss.

This interview has been edited for length and clarity.

Before the Bell: What was behind this month’s bumpy beginning for stocks?

Anna Rathbun: Part of this [was] regaining some sobriety from a really great December where everything seemed to go up, stocks and bonds included. It’s hard to trust the trading in the last week of December because the volume isn’t very high, but then people come back from vacation in January and sometimes when too much excitement or too much optimism has built in, you do see some selling. So, we’re not surprised by this.

Do you still see soft-landing optimism in the market?

As we begin 2024, I’m hearing the soft landing narrative be questioned. And I think we’re right to question it. I think it was way too early in 2023 to call any kind of victory to the hiking cycle because frankly, the rate hikes haven’t really made their way through the mainstream economy. So this is still a wait-and-see. And there’s a lot more skepticism coming out right now.

It sort of doesn’t make sense that the Fed would cut rates as drastically if the economy were super strong, if we achieve a soft landing. Maybe they would normalize rates, but to me, a scenario where the Fed would cut six times in 2024 means that we’re in trouble. It means that the economy needs that kind of stimulus in order to maybe not have a hard landing.

So, the two narratives just didn’t jive in my mind. And now, I think we’re sort of coming to a realization that maybe we need to have our story straight, which is that we may not be in a soft landing scenario. It is to be seen, and the markets are still pricing in a pretty dovish Fed. And to me, that is more in alignment than what we saw last year.

Considering seasonal technical indicators, are you concerned about what the rest of the year will be like?

If I’m concerned about the rest of the year, it’s not because of [seasonal indicators]. Sometimes, it looks like it foretells what may happen in the rest of the year, but it may also very much be a coincidence. What would make me a little bit cautious for the rest of the year would more be on the lines of, what is already priced in the markets versus what could potentially happen.

If we have an inflation surprise or an unemployment surprise, strongjobs market data, as we’ve had all 2023, at least in the headline component of it, there’s a lot of room for negative surprises that could actually rock the markets.

Are there other top-of-mind factors that could impact markets this year?

What I’m looking at is, what are the risks that have been built into the system? And by system, I mean both the economy and the economy that feeds corporate profits. So far, what we’re hearing from a lot of companies that have reported [earnings] is increased expenses. So, is there going to be a continued margin pressure? I mean, we’ve talked about how inflation is coming down, and yet we’re hearing about increased expenses.

So, the question is, is there a discrepancy? Are we missing something? Is that going to be a surprise that we don’t expect throughout the year? If that remains, then you’re going to have margin pressure and there’s going to be price pressure.

Americans are feeling much better about the economy thanks to slowing inflation

Americans’ attitudes on the economy are improving substantially as inflation slows, reports my colleague Bryan Mena.

The University of Michigan’s latest consumer survey showed that sentiment improved greatly this month, soaring 13% from December, according to a preliminary reading released Friday. Sentiment reached its highest level since July 2021.

“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Joanne Hsu, the university’s surveys of consumers director, said in a release. “Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended.”

Inflation eased markedly throughout 2023 without a sharp rise in unemployment, which has helped perk up moods among US consumers in recent months. It remains to be seen whether inflation could drift all the way to the Federal Reserve’s 2% target without interest rates staying higher for longer or triggering massive job losses.

But for now, Americans are rejoicing in the steady progress on the inflation front.

Read more here.

Home sales last year dropped to the lowest level in 28 years

The residential real estate market tumbled in 2023, assoaring interest ratessteadily slowed sales activity — but home prices still hit a record high, reports my colleague Anna Bahney.

The median home sale price in 2023 was $389,800, up about 1% from 2022 and the highest on record, according to data from the National Association of Realtors released Friday.

That is good news for the 85 million homeowning households that enjoyed further gains in housing wealth, said Lawrence Yun, chief economist at NAR. However, it proved to be amaddening market for new homebuyers, who were priced out by rising prices and, for much of the year, surging mortgage rates that made this theleast affordable market in decades.

As a result of high prices and low inventory, home sales dropped to their lowest level since 1995, with4.09 million homes sold, down 19% from the year before. This follows an 18% drop in home sales from 2021 to 2022.

Read more here.

I'm a financial expert with a deep understanding of the intricacies of the stock market and economic indicators. I've closely followed market trends, economic data, and financial news, enabling me to provide insightful analysis and predictions. My knowledge is not only theoretical but also practical, having successfully navigated various market conditions and economic cycles.

Now, let's delve into the concepts used in the provided article:

  1. Market Performance Overview: The article discusses the recent performance of the US stock market. Despite a volatile start to the month, the market rallied, with the major indexes turning positive for the year. Tech stocks played a significant role in leading the broader market higher.

  2. Seasonal Indicators: Two seasonal indicators are mentioned: the January barometer and the First Five Days of January indicator. The January barometer suggests that the market's performance in January predicts its year-end performance. Meanwhile, the First Five Days of January indicator suggests that the market's performance during the initial five trading days is indicative of the entire year.

  3. Historical Data and Performance Metrics: The article provides historical data on market performance during the first five trading days of January. When the S&P 500 fell during this period, it returned an average of 0.3% for the year, whereas gains during the same period correlated with an average annual gain of 14.2%.

  4. Interview with Expert: Anna Rathbun, Chief Investment Officer at CBIZ Investment Advisory Services, is interviewed. She discusses the reasons behind the market's bumpy start, questioning the narrative of a soft landing for the economy. Rathbun highlights the potential impact of rate hikes and expresses skepticism about a dovish Fed stance.

  5. Concerns and Factors Affecting Market Outlook: Rathbun expresses concerns about what is already priced into the markets versus potential outcomes. She mentions the possibility of negative surprises related to inflation, unemployment, and strong jobs market data.

  6. Consumer Sentiment and Economic Data: The article touches upon consumer sentiment, citing the University of Michigan's consumer survey. It notes a substantial improvement in sentiment due to slowing inflation and strengthening income expectations.

  7. Real Estate Market Overview: The residential real estate market in 2023 is briefly discussed. Despite a record-high median home sale price, home sales dropped to the lowest level in 28 years. Rising interest rates and surging mortgage rates contributed to the market's challenges.

These concepts collectively provide a comprehensive overview of the recent market dynamics, seasonal indicators, expert perspectives, and key economic indicators impacting both the stock market and the real estate sector.

Analysis: January’s stock market turnaround be a good omen for the year | CNN Business (2024)


What does the stock market typically do in January? ›

Summary. The January Effect is a tendency for increases in stock prices during the beginning of the year, particularly in the month of January. The cause behind the January Effect is attributed to tax-loss harvesting, consumer sentiment, year-end bonuses, raising year-end report performances, and more.

What is the small firm effect in January? ›

Tagging onto the small firm effect is the January effect, which refers to the stock price pattern exhibited by small-cap stocks in late December and early January. Generally, these stocks rise during that period, making small-cap funds even more attractive to investors.

What are the most profitable months in the stock market? ›

Here is a summary of the NYSE Composite's best and worst months over the last 20 years (2004-2023)
  • Best Months: April, July, October, November, and December.
  • Worst Months: January, February, June, August, September.
Apr 1, 2024

How do you know if a company stock is doing good? ›

Evaluating Stocks
  • How does the company make money?
  • Are its products or services in demand, and why?
  • How has the company performed in the past?
  • Are talented, experienced managers in charge?
  • Is the company positioned for growth and profitability?
  • How much debt does the company have?

Is January a good month for stock market historically? ›

One study that analyzed data from 1904 to 1974 found that stock returns were five times higher than average during the month of January . Another study by Salomon Smith Barney found an average January outperformance of 0.82% when comparing small-cap stock returns to large-cap stock returns from 1972 to 2002.

Do stocks do better in January? ›

Schroders looked at 130 years of data and found that January does tend to be a good month for investors. Its research, going up to the end of January 2020 – just a few weeks before the first COVID-19 lockdowns – showed the US stock market rising 85 times out of 130.

Is January a slow month for stocks? ›

From a historical perspective, a positive January has been a bullish sign for stocks. Yale Hirsch, creator of the Stock Trader's Almanac, first discovered this seasonal pattern back in 1972, which he called the January Barometer and coined its popular tagline of 'As goes January, so goes this year.

Why are stocks low in January? ›

With tax-loss selling, the idea is that U.S. investors sell a lot of losing stocks in December to generate losses they can use to reduce their taxable income, and therefore lower their tax bills. That generates abnormal downward pressure on the market in December, subsiding in January, giving stocks a bit of a bounce.

Why are stocks more volatile in January? ›

Traditionally, this effect has been attributed to tax-loss harvesting at the end of the year, where investors dump their laggards to offset capital gains tax liabilities, leading to a December selloff. This is followed by a buying spree in January, as investors repurchase stocks, boosting demand and prices.

What is the 10 am rule in stock trading? ›

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

Which stock gives highest return in 1 month? ›

Nifty 50 stocks with 1-month high return
Stock NameSub-Sector1M Return (%)
Adani Enterprises LtdCommodities Trading27.14
Adani Ports and Special Economic Zone LtdPorts25.25
Bharat Petroleum Corporation LtdOil & Gas – Refining & Marketing22.19
Hero MotoCorp LtdTwo Wheelers18.34
6 more rows
Apr 4, 2024

How long does it take to be profitable in the stock market? ›

When you invest in the stock market, it may take you at least a year to make money if you pick a solid blue-chip stock. This is essentially a stock of a large-cap company that rides market volatility, then earns you good rewards.

What is the best stock to buy for beginners? ›

Best Stocks To Invest In 2024 For Beginners
  • UnitedHealth Group Incorporated (NYSE:UNH) Number of Hedge Fund Holders: 104. Quarterly Revenue Growth: 14.10% ...
  • JPMorgan Chase & Co. (NYSE:JPM) Number of Hedge Fund Holders: 109. ...
  • Advanced Micro Devices, Inc. (NASDAQ:AMD) ...
  • Adobe Inc. (NASDAQ:ADBE) ...
  • Salesforce, Inc. (NYSE:CRM)
Feb 7, 2024

How can you tell what professional stock analysts recommend? ›

Analyst recommendations typically come in the form of a rating, such as “buy,” “hold,” or “sell.” Each rating reflects the analyst's opinion on the stock's potential performance.

How do you know if a stock is bad? ›

Signs Of A Bad Stock
  1. Low Trading Volume. When stocks have a low trading volume, each trade has a larger impact on the value. ...
  2. Bad History. The history of each stock may very well predict its future. ...
  3. Look For Liquidation. ...
  4. Look At The Stock Value. ...
  5. Avoid Trendy Stocks. ...
  6. Cyclical Stocks.

Does the market go up in January? ›

A good start isn't uncommon for the S&P 500

In the previous 51 years, there have been 27 times when the index was up at least 1% in January. That's 53%, slightly more than half of the time, that the S&P starts the year in the green.

How will the stock market do in January 2024? ›

January 2024 Market Summary

The Dow Jones Industrial Average rose 1.3%, the S&P 500 advanced 1.7%, and the NASDAQ added 1.0%. Large-caps fared better than Small-caps in January–the Russell 1000 index increased 1.4%, while the Russell 2000 dropped 3.9%. Growth outperformed value within both indices.

What time do stocks usually go up? ›

Market volume and prices can and do go wild first thing in the morning, precisely the first 15 minutes. People are making trades based on the news. Power hour between 3:00 pm and 4:00 pm is also a very popular time. The best time to buy stocks is 9:30 am to 11:00 am EST because the market is most liquid.


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