January’s Over, and It Doesn’t Look Good for the Markets!
January is over, my friends!
Statistically-speaking, 36% of the people who made New Year’s Resolutions a month ago (45% of Americans)… have already given them up.
But I heard Oprah’s lost 26 pounds and eaten bread every single day! So at least some of us are off to a good start in 2016!
Global stock markets, on the other hand, are having an awful start to the year.
By January’s end, the Dow was down 5.5%… and Chinese stocks were down 11.6%!
(Hat tip to Boom & Bust subscribers who’ve made money in those two markets… even as stock markets tumbled.)
No doubt, any investor who came into the year feeling confident and hopeful has had those warm-and-fuzzies slapped out of him by Mr. Market’s invisible (and merciless) hand.
And my research suggests that black cloud could very well linger for the next 11 months.
History shows there’s a degree of predictability in annual returns, after judging how stocks fare in January.
When stocks are up in January… positive annual returns are both more likely to occur and tend to be stronger as well, on average.
Meanwhile, negative January returns don’t guarantee stocks will finish the year in the red. But the odds of a strong, bullish year are now much lower. And the risk of further losses is now greater.
Here’s a table that shows how annual returns have fared, after coming out of a January that’s returned negative 5% or lower (it’s only happened 11 times).
As you can see, the 5.5% loss that U.S. stocks suffered this January will go down in history books as the seventh-worst January ever.
And unfortunately, joining this “Top-10” club means bullish investors are statistically likely to face a stiff headwind this year. At the bottom of the table you’ll notice that annual returns have averaged negative 1.7% following Top-10 worst Januaries.
