The Three Seasonal Patterns Investors Need to Watch

January 9, 2024  |  Michael Reilly

Let’s talk about the January Trifecta.

What is the January Trifecta?

Well, as the name implies, it’s not just one “thing.” It’s three.

And in this case, we’re talking about three seasonal patterns that investors should be aware of – because the saying goes…

“As goes January, so goes the year.”

The three components of the Trifecta consist of the “Santa Claus Rally,” the “First 5 Days” and the “January Barometer.”

The Santa Claus Rally is behind us, spanning the last five trading days of December and the first two days of the new year. However, there’s still important information to be had.

You see when there are positive returns in the S&P 500 during the Santa Claus Rally, it’s often a precursor for a profitable year.

But when “Santa fails to call, Bears may come to Broad and Wall” – another Wall Street axiom.

And unfortunately, Santa was a no-show for his annual rally.

According to my trusty Stock Trader’s Almanac, dating back to the 1950s, when Santa is a no-show it often precedes some underwhelming years for the S&P 500.

You can check the history if you’d like. Pull up a chart of January 1999, 2004, 2007, and most recently 2016.

We know the S&P 500 did not rally during the seasonally strong Santa Claus Rally.

Scrooge 1 – Santa 0.

The second leg of the January Trifecta is the “First 5 Days” which, much like the Santa Claus Rally, often acts as an early warning system for what’s to come by year-end.

The last 47 up “First 5 Days” were followed by full-year gains in 39 of those years – that’s an 83% accuracy rate.

Not too bad.

And in Presidential election years, this indicator has been equally reliable with 15 of the previous 18 election years following the direction of the First 5 Days.

Yesterday, January 8th, marked the 5th trading day of the new year with the S&P 500 Index, NASDAQ, and the DJIA all underwater to start the year.

So far we’re 0-2 in January, with neither the “Santa Claus Rally” nor the “First 5 Days” following stronger seasonal tendencies for positive returns.

Bah Humbug.

The last leg of the January Trifecta is January itself commonly referred to as the January Barometer.

In other words, how the month of January goes pre tells how the remainder of the year often ends.

Going back over the previous 73 years the January Barometer has forecast the S&P 500 with an 83% accuracy.

If January is a down month, history has indicated it may be a tough year for the S&P.

But January isn’t over and neither is the year so let’s not be too pessimistic just yet.

There’s still reason for optimism. And remember, we use seasonal tendencies for information – not as a stand-alone trading strategy.

2023 markets generally followed seasonal tendencies so there wasn’t too much information coming out of the seasonality patterns.

But 2024 is showing itself to be different.

Investors like us just need to be aware of the environment and adapt our investing accordingly.

There is already some interesting movement on the sector level that has our attention and gives us reason to be optimistic today.

Remember, there’s more to the market than the S&P 500 Index. So, while the index may be off to a sluggish start to 2024, there are five of the broad sector groups showing strong relative and absolute performance.

We love sector rotation!

So while the index may remain under pressure, Healthcare, Financials, and Industrials look to be working.

Keep an eye on these sectors, as a new year may bring new trends!

Until next time…


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Michael Reilly

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