The first five days of 2020 are in the books. Although the headlines have been quite scary, equities have picked up right where they left off last year. In fact, after the first five trading days of the new year, the S&SP 500 Index is up a respectable 0.65%.
Jeffrey Hirsch of The Stock Trader’s Almanac follows and tracks many interesting seasonal patterns. One that we find very interesting states that how stocks perform the first five trading days of a new year could indicate how the full year will go. Now, we’ll be the first to admit no one should invest based only on this adage, but the results have been quite compelling.
We did some research and found that when S&P 500 returns in the first five trading days of a new year have been higher, the full-year total return for the S&P 500 has been positive 80% of the time. Compare that to returns being up only 60% of the time when the first five days have been lower, and we have something that has our attention. What about big gains? Well, when those first five days have been up more than 2%, the full year return has been positive a very impressive 16 of 17 times! Only 2018 didn’t follow suit when the first five days were up 2% or more.
“Should you ever invest for a full year purely because of the first five days? We would emphatically say no,” explained LPL Financial Senior Market Strategist Ryan Detrick. “But put in context, this seemingly random bit of info does have a very impressive track record. It is only a small piece of the pie, but the good news is we still don’t see any major warning signs that this bull market is over just yet.”
As shown in the LPL Chart of the Day, when the S&P 500 has gained more than 0.65% the first five trading days of a new year—like 2020—the full year has finished in the green 31 out of 35 times, with a very solid 17.2% average annual return. Although we aren’t expecting gains quite that large in 2020, it does help support the case for the bull for at least the rest of this year.
For more of our investment insights, check out our Outlook 2020: Bringing Markets Into Focus.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
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