After a challenging year in 2022, US stocks are off to a good start in 2023.
The S&P 500 (SPY) gained 6.2% in January, its best January in four years.
The tech-heavy NASDAQ 100 (QQQ) led the way, gaining 10.7% in January, its best monthly performance since July.
Here is a 5-year chart of the S&P 500. It looks like the index is forming a long-term bottom and setting up for more gains.
chart from ycharts.com
The January gains were driven by a few key factors we’ve been highlighting.
- Fed almost done raising interest rates.
- More progress on inflation.
- Stocks looking oversold after big selloff in 2022.
The strong January is also an important indicator that stocks have a high probability of more gains in 2023. Here are more details from CNBC.
“Since World War II, if the market is up in January, it has continued to rise in the remaining 11 months of the year more than 85% of the time and average gain is about 11.5 %,” said Sam Stovall, chief market strategist at CFRA. ” So the old saying, ‘as goes January, so goes the year,’ popularized by the Stock Trader’s Almanac, is a true one.”
“The average annual S&P 500 gain for any year is about 9%, but Stovall said when the prior year is negative there’s historically a higher bounce and the rally averages 14%.”
“If you have a down year plus a positive Santa rally, plus a positive first five days, then in that case the market has been up an average 21% and the frequency of gains is 92%,” he said. “If you add the third level, with the market positive in January, the market was up a shade more than 29% and was up 100% of the time.”
As you can see, history shows that a strong January is a good indicator for future gains – particularly when stocks are coming off a down year such as we had in 2022.
What Should We Expect Looking forward: Stocks are definitely showing signs of more stability and that’s a good thing. In the short run I am still expecting to see some volatility in markets. There are still plenty of speed bumps. For example:
- Potential recession in 2023.
- Slow corporate earnings growth.
- Uncertainty over global military conflicts.
But bigger picture stocks appear to be stabilizing and setting the stage for more gains.
Here’s my plan: My sentiment on stocks is shifting from bearish to bullish. I think this bear market is close to an end. My plan is to use weakness in the market add more shares of my favorite targets. That includes:
- index funds.
- big tech.
- food and energy stocks.
I’ll be back with another update next week – have a great day!
Disclaimer: This is not investment advice. This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
