January is considered a reasonably good predictor of the stock market’s performance for the rest of the year. According to data dating back to 1928, when January sees an increase in the S&P 500, the rest of the year is up 77.6% of the time, with an average return of 8.57%. This year, the S&P 500 rose 6.18% in January, which could bode well for the rest of the year.
In addition to the performance of January as a whole, the first five trading days of the year can also provide valuable insight into the market’s outlook for the rest of the year. When the first five sessions of the year are up, the S&P 500 is up 74.6% of the time with an average return of 11.02%. On the other hand, when the first five sessions are down, the S&P 500 is up only 50% of the time with an average return of 1.11%. This year, the first five sessions of January saw the S&P 500 trade up 1.4%, which could also be a positive sign for the market’s performance this year.
However, the best scenario for market performance is when both the first five trading days and the month of January are up, which is the case this year. In 46 instances since 1928, the S&P 500 has seen a combined increase in the first five sessions and the month of January. In this scenario, the year is up 82.6% of the time with an average return of 14.59%, and the rest of the year is up 80.4% of the time with an average return of 9.95%. This data suggests that the market could see stronger returns for the rest of 2023.
It’s important to note that the ‘January Effect’ is not a guaranteed indicator of market performance and past performance does not guarantee future results. Nevertheless, this historical data can provide valuable insight into market trends and help investors make informed decisions.
The rise in the S&P 500 in January and the positive performance of the first five sessions of the year could be positive indicators for the rest of 2023. However, as always, it’s important to consider other economic and market factors before making any investment decisions.
China’s economy is showing signs of improvement as growth is picking up steam. The official non-manufacturing PMI rose to 54.4 in January, driven by a surge in travel and hospitality services, as well as construction. Although the manufacturing sector is recovering more slowly, there are indications of an impending acceleration with expanding new orders in mainland China and other Asian countries pushing the regional index above the break-even point. However, trade remains under pressure due to weak demand from developed markets, with new export orders still contracting in emerging Asia. Supply chain disruptions from the recent wave of infections in mainland China have subsided, and price pressures are being contained.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
This week’s economic calendar is relatively light, with few major reports expected to be released. The most important release, the initial claims report, is due at the end of the week. Despite the lighter schedule, market participants will be closely watching the initial claims report for insights into the health of the labor market and the overall economy.
The Federal Reserve announced its latest policy decision last week, lifting the target range for the federal funds rate by 25 basis points to 4.5-4.75%. This move was in line with market expectations. Despite this increase, the Fed’s language on “ongoing increases in the target range” remained unchanged and Fed Chairman Powell’s comments leaned towards a dovish stance. Based on this, we expect the Fed to make two more 25 basis point rate hikes, bringing the terminal target range to 5.0-5.25%. Stay tuned for more updates on the economy and its impact on markets and businesses.
The January Nonfarm Payrolls report showed a significant increase of 517k jobs, exceeding expectations. The unemployment rate fell to 3.4%, the lowest since 1969. The average workweek increased by 0.3 hours, and average hourly earnings increased by 0.3% MoM and 4.4% YoY. The strong labor market indicators suggest continued economic expansion and support the expectation of two more 25 basis point Fed Funds rate hikes in March and May. The analysts predict that the peak Fed Funds rate this cycle could reach 4.875% with the possibility of further increase if the labor market data continues to improve. The first rate cut is expected in December 2023.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
Aggregate Estimates and Revisions
- 22Q4 Y/Y earnings are expected to be -2.7%. Excluding the energy sector, the Y/Y earnings estimate is -7.0%.
- Of the 250 companies in the S&P 500 that have reported earnings to date for 22Q4, 69.6% have reported earnings above analyst estimates. This compares to a long-term average of 66.3% and prior four quarter average of 75.5%.
- During the week of Feb. 6, 93 S&P 500 companies are expected to report quarterly earnings
The 22Q4 earnings season is underway and aggregate estimates show a Y/Y decline of 2.7%. However, excluding the energy sector, the Y/Y earnings estimate drops further to -7.0%. So far, 69.6% of the 250 S&P 500 companies that have reported 22Q4 earnings have surpassed analyst expectations, which is slightly above the long-term average of 66.3% and higher than the prior four-quarter average of 75.5%. This week, 93 S&P 500 companies are scheduled to announce their 22Q4 earnings results. These announcements can have a significant impact on individual stock prices and the overall market sentiment. It will be important for investors to closely monitor earnings releases and analyst revisions in order to stay up-to-date on the latest market trends and financial performance of companies.
Source I/B/E/S data from Refinitiv
Global Spotlight
As South Africa’s President Cyril Ramaphosa prepares to deliver his State of the Nation address on February 9th, tensions are high in the nation’s capital. The president is expected to update the country on economic improvements under his Economic Reconstruction and Recovery Plan, as well as outline key objectives for the coming year.
One of the most pressing topics will be President Ramaphosa’s decision on whether or not to declare a nationwide state of emergency over South Africa’s worsening electricity crisis. If he does so, it would free up financial resources and allow for faster spending – though this wouldn’t necessarily solve load-shedding in the short term.
The president’s decision has been met with both support and opposition – with civil society groups calling for protests against load-shedding while Ramaphosa speaks. This has put police forces on alert and raises fears of violent clashes during the address itself.
On February 14th, Ecuadorians will be heading to the polls for both local elections and a public referendum proposed by President Guillermo Lasso. While the president’s approval rating currently stands at an abysmal 82%, these voting opportunities are seen as a way for him to push through his policy agenda and separate himself from unpopular policies.
The referendum, specifically, consists of eight questions designed to boost national security, reduce bureaucracy, improve institutional quality, and increase environmental sustainability. If passed, greater collaboration between the armed forces and police would be allowed, as well as environmental compensation programs that would help protect nature and provide aid to people, communities, and ethnic groups.
Opinion polls show significant levels of support for the reforms proposed in the referendum – suggesting that at least watered-down versions may pass through on election day.
Brazilian President Luiz Inacio Lula da Silva will be visiting the White House on February 10th for a meeting with U.S. President Joe Biden. The two leaders will primarily be discussing U.S. support for Brazil’s democracy – including probable discussion of former President Jair Bolsonaro’s request for a continued tourist visa in the United States, something some have suggested is an attempt to avoid arrest back in Brazil.
Additionally, the two are likely to look into opportunities for collaboration on climate initiatives – potentially culminating in a joint announcement of reforestation efforts. This could include direct U.S. funding for Brazil’s government-led Amazon Fund, as well as direct funding for farmers to reforest their farmland.
German Economy Minister Robert Habeck and French Finance Minister Bruno Le Maire will be visiting Washington, D.C. on February 7th. The purpose of the trip is to discuss ways for European companies to benefit from U.S. green subsidies introduced by the Inflation Reduction Act, something European leaders are worried may draw investment away from the continent.
The visit is happening just two days before a Special European Summit, during which EU leaders are expected to debate the recently unveiled EU Green Deal Industrial Plan. This plan consists of a series of Commission proposals aimed at encouraging the transition towards renewable energy sources in the European Union while protecting its industrial base in light of increased competition from China and the United States – though no agreement on Inflation Reduction Act provisions is expected to come out of this visit. Nevertheless, talks will also likely focus on avoiding an escalating subsidy race between Europe and America that could develop into a full-fledged trade dispute.
Stratfor.com
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