Pennsylvania Trust

Is a Down January So Bad?

The following commentary represents the views of the Growth Strategy Team.

Photo of George McFarland.The S&P 500 declined 3.1% in January. Some may ask whether this indicates that the full year will likely be down as well. The good news is that, based on historical trends, the answer is no.

Over the past 15 years, from 2000 through 2014, there have been eight years in which January performance was negative. While it may be surprising that we have seen more negative than positive Januarys over the past 15 years, it may be even more surprising to know that in a majority of those instances, the market turned around and ended the year with positive returns.

In fact, the last three times the market opened with a negative January, it finished with not only gains, but with double-digit gains, by year-end. Recent market history, therefore, favors a positive close to this year, despite the negative January.

What about during economic recessions?

It is worth noting that during each of the three years this century in which a negative January led to a negative full-year result, the market was in or beginning an extended bear market period marked by economic recession. While a recession could occur as 2015 unfolds, it is unlikely, and that is a significant factor in assessing the importance of a negative January.

This pattern, incidentally—of negative Januarys leading to a negative full-year result only during bear markets marked by recession—is not a new phenomenon … it played out in the 1980s and 1990s as well.

What is the outlook for 2015?

If the most recent 35-year history of the stock market is a guide, then so long as the economy stays out of recession, the market should produce a positive return in 2015 despite a negative January. Stay tuned …

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