My wife and I started a relationship right away. Our first date was on February 3rd, we got engaged on May 11th, and we were married 6 months later. It was a fast start, but after 27 years, things are looking good. The stock market may move even faster than we did this year.
How is the market in January? We had such a strong November and December that we were all bracing ourselves for a negative month, but thankfully we were wrong. Stock prices continued to rise in January following December. The S&P 500 index's gain of 1.6% in January may not sound like much, but if it maintained that pace throughout the year, it would result in an annualized return of more than 19%. I expect the market to get better, but I don't think it will get much better.
A strong January this year gives me hope for the rest of the year. This is thanks to the stock trader's almanac adage, “When January is over, January is over.” This adage has been correct 75% of the time over the past almost 80 years. Meanwhile, if a stock goes positive in January, it will average about 12% for the rest of the year.
On top of that, stocks have historically performed well, even after the S&P 500 hit a new high in January for the first time in more than two years. If there was more than a year between two market highs, stocks rose almost 12% on average in the 12 months after the new high.
The question arises whether the stock price is too high. While interest rates are definitely a little high right now, the market expects interest rates to start coming down and stock prices to become more favorable. Another reason for the high valuation is strong stock returns, indicating further potential. As of February 8, more than half of the S&P 500 stocks had reported earnings that beat market expectations by more than 4%, demonstrating continued economic resilience.
Although we have a good feeling about the market this year, we also recognize that there may be some challenges. As I plan for this year, I'm taking into account the uncertainty of the presidential election and even the impact of terrorist attacks in the United States. I came up with these financial scenarios for my client's accounts. There may be some volatility in the short term, but I believe these events can be successfully weathered with active management.
Looking at the big picture of what to expect from the market this year, stocks and bonds should continue to have a strong year due to a resilient U.S. economy, lower interest rates, and higher earnings.
Now that our children are adults, we downplay the fast pace to marriage. In my case, a baby in her arms was out of my league, so she didn't want to give her too much time to figure it out. I don't think the stock price is out of bounds, but I hope it continues to rise.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor of Fervent Wealth Management.