Why Stocks Could Kick-Off 2024 With a Flop

“A stock market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.”

-        Peter Lynch

“What the…”

My sleepy mind was trying to make sense of what I was seeing.

I woke up to the security cameras detecting movement. It was that time that’s both very late at night and very early in the morning. Usually, the culprit is a curious fox, a rummaging racoon or opossum, or even an annoying bug that’s found a motion sensor too intriguing to ignore.

But this night my heart stopped as I glanced at the camera feed on my phone.

I bolted upright, “Are those…”

“… Horses?” my wife completed my thought.

And sure enough they were. The problem is… we don’t have horses. But galloping through the paddock, strolling past the front door, and inspecting the fence was a small herd of horses… led by a wily, old pony.

Apparently, they had gotten tired of being penned for the winter and were looking for a treat. The pony, a notorious rabble-rouser and jailbreak leader, remembered our farm had apple trees. So, she sprung her taller companions – still wrapped in their bedtime blankets coats - and took them on a trek to see if there were any lying about for a midnight snack.

Unfortunately, they arrived several months too early… or too late, depending on how you look at it.

The unexpected is what life’s about. It’s what gives us stories. It’s what leads to us and our spouse trying to corral a random herd of horses (and a mischievous pony) at 3:00 AM on a cold winter’s night.

The unexpected is a gift all its own.

But here, our fortunes are built on routine. Built on knowing what’s coming next. That we’re not too early or too late. And how to use that to our advantage…

AI’s Thundering Stampede

2023 ended with a bang.

Equities went on their longest winning streak since 2004. And they finished the year either at or near record highs. The Dow Jones Industrial Average rallied 13.7%, setting new high-water marks. The S&P 500 soared 24.23% and came within spitting distance of new all-time highs. Meanwhile, the Nasdaq raced 43.4% higher as the Invesco QQQ ETF (QQQ) galloped more than 53%.

The “Magnificent 7,” fueled by the potential of artificial intelligence, whipped tech stocks into a frenzy.

But that was the year I told investors to expect.

Unfortunately, it’s a performance that likely won’t be repeated this year. Though, we’ll cover that more as we get deeper into 2024.

For now, let’s focus on one month at a time. And the terrible Wall Street myth that gets under my skin…

That infamous, “January tends to be a good month for stocks.”

It even has a name, “The January Effect.”

There’s all this poorly thought-out evidence to explain the phenomenon… Investors and firms book end-of-year losses or gains in December, then buy back in January. In turn, stocks typically enjoy a strong – profitable – start to the year.

Or investors take their cash year-end bonuses and plow it into stocks.

At a cursory glance, this appears reasonable. Heck, it borders on insightful and intelligent.

It might even sound like a strategy you should be using yourself.

But I hate to rain on your parade…

More often than not, it isn’t true.

So, let’s peel back the layers and unveil the real story…

The January Let Down

The fact is, since 2000, January has been one of the worst months for stocks!

It is one of only four months during that stretch that’s averaged a negative return.

Let me repeat that… equities average a negative return in the month.

Let me show you what I mean. Here is a chart of how the SPDR S&P 500 ETF (SPY) – a proxy for the S&P 500 – has performed in January since 2000.

We can see it’s ended the month lower 13 times.

For those paying attention, that means blue chips have exited the first month of the year with a gain a mere 45.8% of the time!

That’s less than half!

The January Effect in reality, is often the January Let Down.

Blue Chip Blues

Now, few trends are absolute.

We can see from the chart above that the SPY has posted some strong performances in January during the past quarter century… 2001, 2012, 2013, 2018, 2019 and 2023.

But these often follow a sub-par December.

For instance, the 5.75% gain in January 2023 followed a 6.44% loss in December 2022, capping a bitter bear market.

The 9.74% gain in January 2019 came after a devastating 10.83% loss in December 2018… the worst December since the Great Depression.

But the biggest takeaway here is January has been a sea or red more often than not. The SPY has posted only four positive returns in January in the last 10 years. And remember, a good portion of that time was during the longest bull market in American stock history.

So, it’s no surprise that stocks are in the red to start 2024.

The January Let Down follows what is historically a Kentucky Derby of gains for U.S. equities to close out the year. And after such a strong run, stocks – like thoroughbreds - need to catch their breath. In turn, the SPY has averaged a 0.51% loss in January since 2000.

The new year is a time to reset and refresh. To make resolutions about how we intend to be healthier, wealthier, and wiser in the year ahead.

But for investors, January often doesn’t provide much in the way of celebration.

Fortunately, understanding this can be pivotal to your financial future. You’re now armed with knowledge that can allow you to position yourself and your portfolio to start each year off on the right foot. To look for opportunities during January’s traditional pullback and letdown.

Horse (and ponies) get tired of being stabled in the winter. But they also need a rest after a long run.

Ready for a breather,

Matthew Carr

P.S. The MoneyShow organization just released its blockbuster annual publication, MoneyShow’s 2024 Top Picks Report: 90+ Stocks to Buy for 2024. The gala report includes timely and insightful recommendations from your very own Matthew Carr, plus dozens of investment ideas from friends and colleagues at several other publishers and independent research firms.

Best of all: We’ve arranged for you to receive a FREE copy! Simply CLICK HERE to access it immediately.

This year’s edition includes 91 recommendations from 53 contributors. They run the gamut from conservative, quality blue chips designed to generate safe and steady returns to high-growth stocks with massive potential upside. You’ll also find several non-common-stock investments in this year’s report. That includes ETFs and other vehicles designed to help you profit in multiple sectors, asset classes, and investing styles.

---

Before you go rushing off to do all those things that make you great, do me a favor … Don’t worry, I’m not asking for money. But if you like what you read here, give me a like, comment or share this article with a friend. If you didn’t enjoy what you’ve read, tell me why. I’m not promising you won’t hurt my feelings, but I’m open to suggestions for improving content!

---

© 2023 Matthew Carr

All rights reserved.

Any reproduction, copying, distribution, in whole or in part, is prohibited without permission.

This market commentary is opinion and for entertainment purposes only. The views and insights shared by the author are based on his many years of experience covering the markets. But they are subject to change without notice and opinions may become outdated. And there is no obligation by the author to update any information if these opinions become outdated. The information provided is obtained from sources believed to be reliable. But the author cannot guarantee its accuracy. Nothing in this email should be considered personalized investment advice. Investments should be made after consulting your financial advisor and after reviewing the financial statements of the company or companies in question.